Senate Budget and Fiscal Review Subcommittee No. 2 on Resources, Environmental Protection and Energy

Budget subcommittee two on resources, environmental protection energy will come to order. We're holding this hearing in the 0 Street Building. I ask any absent member to present herself in Room 2200 so we can well, we're gonna establish a form already. Let's take roll.

Senator Reyes. Present. Senator Reyes present. Senator Blake Spear. Senator Choi?

Here.

Senator Choi present. Senator Mcnearney?

Senator Mcnearney present. Thank

Here.

you. We have 12 issues on the agenda today. We'll be discussing all of these. However, normally we take public comment after the end of all the issues. Today we are going to take public comment after the first issue.

We see lots of interest here today and we want to be sure that we we give you back your time after you have given your public comment on the issue and then we will proceed with the rest of the agenda. We will not be holding a vote today. All items are being held open and would be voted on at a future hearing. But to be clear, for the rest of the items on the agenda we will be taking public comment on those at the end.

Very good.

So let's start with issue number one. Sustainable aviation fuel tax credit proposal. Our speakers are Andrew March, department of finance. Helen Kersting, legislative analyst office. And Aaron Smith University of California Berkeley.

Alright. Let's begin with doctor Smith.

Thank you for the opportunity to to be here today and to and to share my to share my thoughts about the proposed tax credit for sustainable aviation fuel or SAF. I'm a professor at UC Berkeley. I have worked on biofuels policy for about twenty years. Air travel is one of the hardest sectors to decarbonize. Among potential technologies, current batteries are too heavy for long long haul flights.

Hydrogen takes up too much space. So liquid fuels that can replace the jet fuel that we use are the most viable current option for decarbonizing aviation. I want to say three things regarding this tax credit. The first one is, I believe the tax credit would lead to much more SAF coming into the state than what the administration is projecting.

Second, SAF is expensive and therefore an increase in the amount of SAF would come at high cost both by reducing tax revenue to the state and also by increasing gasoline and diesel prices to drivers.

The net reduction in carbon emissions, this is point number three, would be small and expensive. So just quickly, what is SAF? SAF is chemically similar to regular jet fuel except it's made from vegetable oils or fats It can be made from vegetable oil like the oils we buy in the grocery store for cooking. It could be recycled cooking oil collected from restaurants. It could be beef tallow that might otherwise have been fed to to livestock.

SAF is produced in large facilities much like oil refineries. In fact, some SAF and renewable diesel producing facilities used to be oil refineries. So to my first point, the tax credit would lead to high SAF production. There is a lot of potential in the industry right now to reduce SAF if the subsidies are big enough and that's a key point. To my knowledge, six refineries in The United States are currently equipped to produce SAF from vegetable oils or animal fats.

If these refineries were to produce maximum capacity, they could make four to six times more SAF than projected by the administration. They may not choose to produce that much, but they have the capability. In addition, as an alternative to using oils and fats, it's possible to make SAF from ethanol. There's some uncertainty about whether ethanol SAF technology or alcohol to jet technology is ready to scale up, but it's another potential source that could come online and we should consider it.

So to project the actual amount of SAF that would be induced by the proposed tax credit, my colleagues and I developed a model that incorporates the tangled web of state and federal policies that affect fuel use.

Our model projects SAF production at least double that projected by the administration and to 7.5 times the administration's projection depending on how quickly SAF production from ethanol scales up. My second point is that SAF production will be costly for the state budget and for drivers. SAF credit would reduce diesel excise tax receipts by between 2075%. Those lost taxes represent money that would not be available for road construction, for maintenance and for repairs.

In addition, drivers would likely pay more at the pump for gasoline and for diesel because of cost of complying with the state's low carbon fuel standard would increase.

My third and last point, this net reduction in carbon emissions would be small and effective small and expensive I'm sorry. Most of the additional staff that's induced by this test credit would come from a reduction in renewable diesel. And this is perhaps the most important point here that I want to get across. We would be taking the vegetable oil based fuel that we are currently putting into trucks and instead putting it into planes. To understand why we need to know two facts.

First, renewable diesel and SAF are between $2 and $5 per gallon more expensive than fossil jet fuel to produce. That means that they are only viable if they have significant subsidies and support. The second relevant fact is that the federal renewable fuel standard requires a certain quantity of these fuels to be used in the country each year.

So and and the Federal Government program provides subsidies for these fuels Because they're more expensive than the alternative, then industry is not going to provide more of them than is required under the federal standard. That means if we use more of one, we're going to use less of another.

And if I could perhaps use an analogy, imagine somebody who has to drink a gallon of some kind of medicine, at least a gallon of some kind of medicine and they do not like it. There's red and there's green. They can use any combination of red or green they like and they have to use at least a gallon. There's no way this person is gonna drink more than a gallon because they do not like it.

If you pay them a little extra to drink drink green, they'll drink some more green and correspondingly less red, but they're not gonna go over that total of a gallon.

And that's the fundamental tension here with SAF and renewable diesel that incentivizing SAF will tip the balance to mean more SAF but correspondingly less renewable diesel. I also don't believe it's likely that the SAF tax credit would meaningfully save jobs in California because it is available for access to both in state companies operating in state and also out of state. It's not meaningfully changing the competitive balance between firms that are operating in the state versus out of the state.

So in summary, staff is expensive to produce and we generate few benefits for the climate if incentivized through this particular tax credit. I think promoting it only makes sense if it creates a clear path for future costs and emissions reductions.

And I think generally when we're thinking about climate change, we have a finite number of resources to spend and so we need to be thinking about how to spend those most effectively. Thank you.

Good morning. Andrew March with the Department of Finance. So just to provide a brief overview of the proposal. So the governor's budget a 1 to $2 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 will be 1 to $2 per gallon, of SAF depending on the carbon intensity of the SAF.

A few points I'd like to make in response to doctor Smith and also the LAO's analysis. One, the shifting that doctor Smith implied would happen between renewable diesel and sustainable aviation fuel, we believe is highly unlikely to happen given the production capacity of sustainable aviation fuel, the amount of additional feedstock that's available in the country based on publicly available data, and then additionally, recent changes that were announced by the U. S. EPA for the renewable fuel standard.

Two, we don't believe that it's not likely that gas prices would increase because the gas prices increasing is based on this idea that there is limited feedstock in the country or world, which would lead to the shifting between the two fuels.

We think that's highly unlikely. It's it's likely that there would be maybe no, impact to gas prices or they could decrease if there's additional renewable fuel provided. And lastly, the LEO has, implied that, certain companies could restructure to take advantage of this tax credit. We haven't seen that happen in other states that have implemented tax credits.

To our knowledge, there's no evidence to show this, so it would just be speculation, which would mean that sort of this worst case scenario that they're being sort of enormous amounts of SAF produced and sold into California would be highly unlikely given in 2024 the state consumed about a 100,000,000 gallons of sustainable aviation fuel.

We believe it would sort of be around that same area.

Good morning, chair and senators. Helen Kerstein with the legislative analyst's office. So we're recommending rejecting the proposal. Some of the comments I have will you'll I know have already been referenced or or somewhat similar, so I'll try to go through them relatively quickly. There are five main reasons we're recommending rejection.

The first is that according to our analysis, this is a relatively expensive way to decarbonize. So the cost per GHG reduced is relatively high. And we think in general, the state should focus on the more cost effective approaches to GHG reduction before proceeding to the less cost effective approaches. The second reason I wanted to highlight is we think there's a lot of, uncertainty about the environmental benefits of sustainable aviation fuel, and they could be quite a bit less than are estimated.

One of the main reasons is what doctor Smith referenced, just a few minutes ago about this potential, substitution of of different renewable fuels.

So to the extent that this policy resulted in less renewable diesel, and more sustainable aviation fuel, basically just switching which renewable fuel, the net environmental benefits would be significantly less. So that's one reason it could be less than estimated. Another reason is that in the literature, there's some disagreement about the level of environmental benefits from these fuels and renewable fuels just more broadly.

And part of that's the basically, how much, the the environmental impacts of the feedstocks and sort of what their, you know, if there are indirect land use changes that could occur because of the use of those feedstocks. The third reason I wanted to highlight is that we think that there's a lot of uncertainty about the size of this potential tax credit and the according loss in diesel sized tax revenues.

So the bigger this tax credit is, the less deselect sized tax revenues the state will have to spend on its programs. We think there's a lot of uncertainty. So we think that it's certainly possible that those losses could be less than are estimated by the administration, but we also think they could be quite a bit larger. I know that was also referenced by Doctor.

Smith as well, but, you know, potentially, we think it could be a billion dollars or more of lost revenue, into sort of in a worst case scenario, situation.

And then fourth, we'd highlight that we think those reductions in deselect size tax revenues will have some implications for transportation programs that rely on those funds. So currently, there's a formula that allocates those funds and so to the extent you have this tax credit, it's gonna be less money for those programs. So those there are three programs that are affected. One is Caltrans highway maintenance program, it's shop program. Another is local streets and roads.

So it's the money that goes to cities and counties to do work on their streets and roads. And then also funds go to the trade corridor enhancement program, and that's a competitive program the state runs. So, again, depending on the size of this tax credit, which is unknown, there there would be losses accordingly. And then fourth, we wanted to highlight that in our view, this proposal deviates from the spirit of the the voter imposed restrictions on transportation fuel, taxes.

So voters have said a few times at the ballot box, we wanna restrict the use of those funds.

We want them to go to streets, highways, and certain mass transit activities. So this instead would deviate would sort of divert those funds to the aviation sector, which we think is not consistent with the spirit, not necessarily the letter, but the spirit of those restrictions. So those are my comments. Happy to take questions as appropriate.

Alright. Comments from the dice? Questions?

I have comments, questions but I'd rather someone else go first. Okay.

Let's go. Sensory McNearney.

Well, I think, thank the presenters. I appreciate the work that went into this. And this is a controversial issue. We could see outside there was a lot of folks out there waving cards and showing their passion on this issue, which I sort of I appreciate. But I wanna understand a couple of things, about, the feedstock that goes into sustainable aviation fuels, the impact on on diesel production, the impact on food costs.

Are we gonna be using I thought ethanol was mentioned that has an impact on food supply, fertilizers that are used. I mean, the and then lastly, our our forest and ag waste are those potential food feedstocks for this. So, professor, would you care to take the first stab at this?

Need to oh, there we are. Okay. Yeah. I'm happy to do that. So I think there's there's some contention first on the feedstock question.

So I think one number I've seen is to say, well, there's there's there's 23 times as much feedstock available as the diesel use in California or something to this effect. Well, that's true, but most of that is going into the food system because 20% of our calories we eat as Americans come from vegetable oils, which is a surprising number to me. I wouldn't have known it was that high until I looked at the data. So most of that is going into the food system.

And I think that sort of gets to the price question as if like if you were going to put more of it into biofuels then the price is going to have to go up because you're going to have to convince people to produce more of it or you're going to have to convince consumers to use less of it.

In terms of the effect on diesel, it's I mean, I think it's really important to remember that these fuels are significantly more expensive to produce than fossil fuels and that's because the feedstocks cost more. Soybean oil is 0.6 a pound and if we're collecting used cooking oil, it's that same sort of a thing and you need certain number amount of it in order to produce the fuel. So there's just no way to drive down those costs to get them even close to the fossil fuel.

So what that means is the industry as a whole is only gonna use as much of these feedstocks as they have support for under the federal program. And so what California does might move things around more SAF less renewable diesel, maybe more sort of used cooking oil, less soybean oil being used to make these kinds of fuels.

But the cost problem is fundamental and that's really what underlies the idea that increasing one will lead to a loss in the other. And it's true that there's been a bunch of build out of refineries to be able to produce these fuels and they're not producing at capacity. And that's because they don't have enough subsidy support to go to make money doing that. And this proposal sort of shuffles things around, but doesn't do anything to expand the the demand.

Andrew?

Turn it over to my colleague from the Air Resources Board.

Yeah. Thanks for that question, Senator. Matthew Boteau with the California Air Resources Board.

So a couple of points that I did want to make with respect to feedstock availability and the structure of both the tax credit proposal but also of our policies here in California, and that is that the way this proposal is designed, it would encourage and support more waste based feedstocks being used for sustainable aviation fuel, and that is also in alignment with our other biofuels policy here in California that also provides a stronger incentive signal for waste based feedstocks to be used to produce whether it be renewable diesel or sustainable aviation fuel.

So I think the question that we, ask ourselves when we look at a policy like this is, you know, if and the incentive is to support is to pull waste based feedstocks, what's the availability of waste based feedstocks, like use cooking oil or tallow, for instance, to be used as a as a first order feedstock as opposed to a, you know, crop, for instance, like soy or canola.

And so that kind of gets to your question about impacts on food systems. The policy structure to incentivize waste feedstocks and not feedstocks that would go into the food system as a way to avoid or to help reduce the pressure on on the commodities markets.

And we did look at publicly available data on waste feedstock availability, and there's kind of a both a historical precedent and a future looking precedent, and that is, historically, we've seen kind of waste based feedstocks grow to almost triple in availability over the past five years for these types of biofuels, and I think that was unexpected. But what has happened has been enhanced collection from restaurants of waste oils from commercial facilities, both domestically and internationally, to show that supply chain grow pretty significantly.

And there's estimates, there's independent estimates showing that there's potential for that to continue to grow to the order of four to 10 x over the next, decade.

So this question about, like, is there enough waste feedstock, it's a good question. We've seen the private industry kind of respond to these incentive signals to find new creative ways to access those waste feedstocks at cost effective, prices that has driven a bigger supply to be able to meet the demand from the biofuel production. So it's a good question. I you know, and we we continue to evaluate it, but we see availability of those waste feedstocks to meet the increased production demands.

I mean, that sounds pretty optimistic. And it's not our job to be awesome optimists as to lay policy that's gonna not have unintended consequences. Professor, you

Yeah. I mean, because because I think one follow-up to that is and and I hope it's true that that we can cost effectively collect a whole bunch more waste fee stock. But if that is possible, what it means number one is without this California tax credit, we're going to see just more renewable diesel in The United States, because you should think of renewable diesel and SAB has been pretty similar, but SAB is a little more expensive to produce.

One is used in trucks, one is used in trains. So if we really do get access to this sort of extra waste feedstock then that means more renewable diesel that can go into trucks both in California and in other states.

And I think that's a good thing. It also means that this tax credit which incentivizes as Matt said focuses on the waste feedstocks would have an even more of a switching effect to expanding SAF at the expense of renewable diesel because there's more available sort of feedstock than maybe what some expect. So it's part of this is about the balance between like is if we have this optimistic view, what does the tax credit do? Does it make things better or does it make things worse?

Undertale consequences. The other question I have relates to highway maintenance and and and that kind of question. Air air travel is gonna probably need liquid fuels forever. I mean, maybe batteries will get light enough and and enough energy density, but maybe not. We don't know.

And meanwhile, we're seeing with EVs and and so on reduction of highway transportation funds. Is this gonna affect our our ability to maintain our highways and and keep people calling me and say, hey, let's fix those potholes, you know. I don't think you're answer that.

I can take a stab. I mean, I think on the margin, yes. I mean, the scale again, it depends on how big this tax credit ends up being. But some of this funding goes, for example, into the SHOP program. That's one of the state's, you know, key programs that's that's addressing those the the, you know, the highways and their condition and rehabilitation, as well as, you know, some of it goes to local streets and roads.

So I think the answer is yes. Is, again, the size, there's uncertainty. Is it gonna mean that there's no funding? No. But it could be a significant you know, it could be a notable decrease.

And certainly, I think as you point out rightly, Senator, there are other pressures on that funding source already. And I think, there are already concerns about whether the fund existing funding is sufficient, particularly in light of some of those pressures such as the switch to ZEVs, which of course is reducing, helping to reduce our use of gasoline and diesel in the state. So, yeah, I think those are are real questions and I think that's one of the challenges with this with this potential proposal.

Okay. Lastly, another question that comes to mind is the fairness issue here. You know, why give significant tax credit to this as opposed to other other industries? I don't know. I've been warned.

I better stick my face in this microphone. So, I mean, is this fair to the average California consumer, average California resident to put this kind of money into this kind of a program?

I won't say whether it's fair or not, but I think it is it is worth thinking about who winners and losers might be. And so, you know, we so we project there would be some increase in in gasoline prices that, you know, could be 5¢a gallon, could be 10, which was our main projection, could be more. And And so that's something that's felt by sort of everybody across the state. There are others who are specifically in sustainable aviation fuel who would benefit from that.

So I think that's the trade off to think about.

Are

there other states that have comparable aviation fuel type?

So there are, but they don't have a low carbon fuel standard. And so what California has got is we've already got a policy that's providing incentives and now we're going to provide something on top of it, which is going to be enough to tilt the balance in favor of producing significant SAF.

A lot of the other states that also have these tax credits on the books are not yet seeing much SAF because they don't have an additional program like a low carbon fuel standard to sort of help top up the subsidy.

For yielding, looks like someone else has a comment.

Yeah. Just one note, just again on the gas prices. So as Doctor. Smith previously noted, there could be with additional waste feedstocks, additional SAF production and additional renewable diesel, which I think would under would which would lead to not that increase in gas prices. So just wanna clarify that again.

And then there are other programs that we have in California. As doctor Smith noted, we have the low carbon fuel standard. Sustainable aviation fuel is an opt in program for the low carbon fuel standard. Other states there are a number of other states that have sustainable aviation fuel tax credits.

They have varying degrees of either low carbon fuel standards or, cap and trade programs, that are sort of in in various, stages of maturity, but we haven't seen sort of this broad, production or or big shift for sustainable aviation fuel.

The big I would say the big thing that did happen is that under the Inflation Reduction Act, the Federal Government put forward a had a sustainable aviation fuel tax credit. Last year, the Federal Government pulled back quite a bit on that federal tax credit, which caused a shock to the market. And some of the changes that they did to that federal tax credit disincentivized California refineries, specifically.

So we're still sort of waiting to see the impacts of how that change will sort of affect sustainable aviation fuel in the country. So as in BC been seen, we did see sort of a really big uptick when that tax credit was put into place and where we saw sustainable aviation fuel production and consumption jump significantly in 2024 from 2023 in prior years.

So there's still to be seen about whether there would be a contraction in that industry or whether we would sort of, with this tax credit, sort of see that just stabilize with what it's been.

So the challenge seems to me to calibrate what this might look like, you know, just to and then to have some ability to adjust it if it if it goes out of whack in one way or the other. So with that, I will yield back to the chair.

Thank you, Senator.

Thank you, Senator.

Me?

Thank you. I don't have any solutions, but I have more questions. Maybe my questions can be answered anyone who may have answer to that. Basically, this tax credit is trying to incentivize these producers

to produce more sustainable aviation fuel. And then obviously that fuel is low carbon than comparison to petroleum based aviation fuels. To begin with, what is the amount of what is the different amount of carbon between petroleum based aviation fuel versus SAF. And from the report that what I read is that the California's carbon production by the Aviation Airlines is only 1% of that. That's already very small amount to me in comparison to other carbon generations.

So basically the current use of aviation fuel based upon petroleum based fuel or SAF, what are the ratios or the differences right now? And currently at the current status is only 1% of carbon contribution from the airlines. So and my worry is that if we continue to encourage, incentivize more production of SAF, then we need to encourage more refineries to work on that to reduce the cost of that. But our refineries are leaving and I hear some six of them left in our state right now.

And will they be enough to produce the needed aviation fuels?

That's another question. And from this report, it was amazing to read that renewable diesel production in the country, whole amount of RDs are not enough even California consumption alone. And how about other states? How they if the renewable diesel amount is just not enough even for California, how other states are surviving with that low amount of production of our RDs, renewable diesels.

And continuously because of our carbon reduction policy, we are just choking the industry to fold up the business from California and the labor to other states.

So are we planning to continuously rely upon good fuel such as SAFA from produced from other states? Or are we trying to encourage remaining who have survived in our state to keep on producing more by this tax credit program that's being produced? Yes. Okay. I will stop there.

Thanks, Senator. If you don't mind, I'll maybe take the first question. Matthew was telling him from the Air Resources Board. So on the question about comparing sustainable aviation fuel to fossil jet fuel, I think is a really good one. Depending on how you produce your sustainable aviation fuel, because as we've talked about, you can use waste based feedstocks, for instance, or maybe crops like like soy, for instance.

But depending on how you produce that same aviation fuel, it can be anywhere from half to, you know, seven to to, like, more than 70% reduction in carbon intensity relative to to fossil, jet fuel. So, you know, what we would be talking about here with the the tax credit incentive would be to also have a structure that that really incentivizes the lowest carbon intensive SAF to replace that that fossil jet fuel.

I I think you made a a couple of other important points too with respect to to the refineries and to the energy transition and what's happening kind of in California relative to the other, the other states. When we're talking about this potential, substitution effect between renewable diesel and sustainable aviation fuel, you know, from my perspective, like to think about this as what is the long term strategy that California is embarking upon for its energy sector?

And for us, when we look, you know, into the next ten, twenty years, we talk about how are we going to meet our climate objectives, our legislatively mandated carbon neutrality goals by 2045.

We see a ongoing and significant energy transition that has to happen across many sectors, but particularly in the transportation space. And for the on road fleet, for the heavy duty fleet right now, They're using predominantly renewable diesel with some fossil diesel to meet that energy demand. That fuel is being produced both here in California and outside of California to meet our on road energy demand. Over time, we expect that the on road fleet will transition into zero emission alternatives, declining overall demand for liquid fuel.

It's not gonna happen overnight.

It's gonna take decades, two decades to to to realize that vision, but there will be a, and what we expect, an ongoing transition to lower liquid fuel demand in the heavy duty in the trucking space. That is not true for the aviation space. We honestly expect that there will be an ongoing growth in liquid fuel demand as we fly more, as we demand more aviation, and that means we need to find options for decarbonizing the aviation sector that are gonna largely rely on liquid fuels.

And so what we see here is an energy transition happening in California. We see refineries making decisions.

They make long term decisions, ten plus year decisions to invest billions in producing the types of energy that we think we will need. Here in California, We've had refineries convert into renewable diesel production and SAF production, and we've had refineries do that both in California and outside of California. And so as they look at where the long term markets are, they're also looking at, okay, where are we gonna be producing for for the future?

And maybe aviation is a good sector for us to produce in because they also see those signals about what's going on on the on road space. So this transition for, for our energy system is important to make sure that we're also, you know, aligning kind of the incentives where we need to be long term and with the decisions that have been made to convert these refining assets to maintain that reliable supply of fuels that will be needed over the long haul. And and maybe if I can

just follow-up with, you know. The

second part of of the senator's question had to do with only 1% of the state's emissions come from from jet fuel. If you Yeah. Respond to that part of this question as well.

Happy to. And and so

California's

jet fuel consumption, that 1% number and I'd have to, you know, Kinda Caveat this double check the math, but my understanding is that that that number reflects the consumption of jet fuel used for flights there within California because we have data on how that emissions derived from those flights that are moving, like, from Southern California to to Northern California, for instance. So it is a subset of the total jet fuel that is used and filled in the airplanes here in California.

We actually use a fair bit more jet fuel than is representative by those numbers because there is, there are, of course, very busy airports in California, San Francisco, LAX that fuel and fly internationally that, also contribute to global emissions. So, that number, I believe, reflects the intrastate flights. Our true jet fuel kind of consumption is much larger.

And and so the other piece of this is, you know, again, going back to kind of California's long term vision, we have, you know, a two decade experience here of setting policy that helps provide a guidepost for other jurisdictions looking to decarbonize their sectors. And so this is an opportunity to California to once again establish its leadership role in establishing policies that help support long term deep decarbonization. And so we would hope and then to Senator McNerty's point, yes, I'm an optimist.

I'm a perpetual optimist, that we see growth in in other jurisdictions in similar policies. As we move to things like electrification, they move on to liquid biofuels to help support ongoing decarbonization in the rest of the country and globally that we can set that example and that others will follow.

And and maybe just a a couple of follow ups, to to that. So, Matt laid out a sort of a multi decade process here by which we might, transition. One question to ask is, these costs, which I think are quite large that would be borne by Californians now from this tax credit, is that going to meaningfully accelerate the transition as we go into the future?

And one thing that is about this SAF technology for producing SAF from vegetable oils and animal fats is it's a relatively mature technology. The scope to maybe reduce the cost a little bit as you do it more, but you're fundamentally not gonna get close to the cost of fossil jet fuel.

It's probably still gonna be double the cost of fossil jet fuel. And so by using this technology now and paying extra as Californians to provide this leadership, it's I don't I don't think we're gonna meaningfully sort of accelerate where we end up ten or or twenty years from now because the technology for producing SAF is very similar to the technology for producing renewable diesel that we're already doing. And so I think that's one thing that's relevant and important to keep in mind there.

I'm curious. SAF is stock feed or vegetable oils or the food products. That sounds like should be much cheaper. So is that the process is costing a lot more?

No. It's the feedstock. So you say to buy soybean oil $0.6 per pound. You need nine pounds to make a gallon of SEF. So nine times six, that's $5.4 And fossil jet fuel, well, as of a month ago, it was about $2 per gallon wholesale.

So you're already just by buying the feedstock, you're already at a high cost and then you've got some additional cost.

The greenhouse emission difference between the petroleum based fewer versus SAF is a 7%?

Yeah. So right and yeah.

It was 70.

Yeah. If you're using if you're using the waste feedstock. So that would be used cooking oil or if you're using say beef tallow, which is considered a byproduct of beef production. If you're using those, then you're 70% reduction. If you are and this tax credit would only give credit to that particular technology.

So California has no other alternative because we are trying to phase out eventually petroleum based fuels, right? And we what I hear is that the only other alternative is SAF and no matter how expensive it is, so we are trying to offset by the tax credit, right?

Yeah. I mean, so I think the only alternative in the near term is liquid fuels and SAF right now is the most cost effective way to do that is still expensive. Even more expensive would be to use chemistry through sort of extracting hydrogen out of water and you extract carbon out of CO2 and you put those together in an expensive manufacturing process and you can make jet fuel that way. That's even now, right now, even more expensive.

And until we can get really, really cheap electricity that will remain expensive.

But there's other technologies that in theory could exist ten or twenty years from now that could potentially also compete with SAF from Biofuels. I'm sure

The battery may be one option and the other one is

Maybe they figure out how to make batteries lighter. That's possible too.

So I do I do wanna

I'm sorry. Can can I

make one comment real quickly on on on professor Smith's? And I reinforcing that he mentioned the ability to produce fuels from hydrogen and electricity and other sources of carbon. That's what we typically refer to as an e fuel for aviation. It is still the liquid fuel, so it would still be a form of SAF that would be produced. It's it is much more costly and does rely on very, cheap and low carbon electricity, which is not available at this point.

So, if you could think about, you know, again, coming back to the long term, that there still is the the ultimate endpoint on the aviation sector is is by and large the liquid fuel and it's just a question of how can you get that liquid fuel produced with the lowest cost and the lowest carbon possible and that will require more innovation.

So just the last question is that regarding RDs. The Okay. Troy?

Yeah. I think, Elio wanted to to give a comment regarding that last question Okay. Before you move on to the next one.

Thanks so much. You brought so many, interesting good points. I think one of the things, just on that last point is that ultimately, yes. I mean, Aviation is certainly hard to decarbonize. Right now, we don't have other good options.

But I think one of our points is, okay, we don't necessarily have to do the hard expensive things that we're ultimately gonna have to do down the road right now. We can start with the lower hanging fruit. And in general, we want to start with a lower hanging, more cost effective, cheaper things. There are some exceptions.

Like, if you really need if you wanna stimulate innovation, like, real true innovation that's gonna take years and years, maybe you wanna do something that's a little more costly because you Wanna Kinda get that process going.

As doctor Smith said, in general, we understand this technology to be relatively mature. Yes. On the margin, they can make some efficiency changes, but this is a relatively mature technology. And the way this is structured, it doesn't appear to be aimed at doing at really transforming this industry to do something that's totally different and it's gonna be a game changer. So you could do a different policy, and I think, you know, the agenda even mentions, staff mentioned some other alternatives there.

So there are other ways you could do it. So I think that's one kind of key point. You mentioned so many others, but just in the interest of time, I'm happy to defer to your other questions.

So I want to simplify. Just last comment I made about the renewable diesels and heavy trucks, they all depend operate on diesel. And so that means that that situation will be the same, either petroleum based diesel based or renewable diesels. And entire nation's production of the renewable diesels are not enough for California alone.

So that means how are we going to meet the demand of RDs, renewable diesel production demands in our state if we continue try to choke the refinery industry not to operate and get out of our state.

That's to me contradicting policy.

Yes. And I think you have a good point there about sort of just the amount of renewable diesel, which has increased a lot that's being produced in the country now, almost all of it being used in California. And if we think about what is the potential scope nationwide, if you were to replace all jet fuel with SAF produced from soybean oil, you'd have to plant soybeans to every single agricultural piece of land in the entire country.

So if you can get it from importing canola or you can get it from waste feedstocks, you could reduce that down. But there is a sort of a scale problem here that I think we can't think about these bio based fuels as being our long term solution either for diesel where renewable diesel is a lot of it in California, but nationwide it's a much smaller percentage of the total is probably on the order of 10% to 15% of the total.

So so to get all of the aviation fuel and all of the renewable diesel is just not possible to make it all from from vegetable oils and animal fats. So so we we do need to continue working on on other solutions. And I think that, you know, if we're going to pay a lot of cost now for something like this, SAFT task credit, does it does it get into us into a better place ten or twenty years from now?

And I and and I'm not convinced that it does.

Central Express.

Okay. Thank you. This is a really important and, interesting conversation. So I I appreciate all the comments and and the panelists. I think, I'll just start with the thing that's most important to me in this big in this conversation is what we're defunding.

So I guess that's the thing that I'm really concerned about as a member of a budget sub is the idea that we would be pulling money away from Caltrans highway maintenance, local street and road funding, and competitive freight grants. So I I'm already concerned about the fact that we don't have a a reliable sustainable funding stream for our roads and that we are also defunding transit.

And so the the LAO's suggestion that we could get more bang for our buck if we were able to move more people into transit and focus our GHG reductions in that area. I think that's a really important point that we don't talk about enough up here. And so that sort of overlays this whole conversation for me is if the governor was proposing a way to backfill those from somewhere else, then I I might feel better about this.

And I guess the other thing that I am thinking about as I'm reading through all this and is the refinery conversation that we're having at the state level around trying to keep refineries open because we because it's important that we have a local supply, but mostly the the fuel the refined fuel that we use is basically a global market.

So we are what we're doing in in state is less is not really affecting the gas prices that we're seeing, but we are still committed to keeping our refineries open because we are reliant still on gasoline, and they are also job centers, a job base, and communities rely on them. And so figuring out this mid stage transition question of how are we transitioning our refineries and what is their future.

So to me, it seems like when we're talking about sustainable aviation fuel, the question of is it important to us that we onshore them, that we have them in California, or could we be buying sustainable aviation fuel that's produced in Washington state or some other place or some other part of the world In the same way that that, petroleum is a is a international market, so sustainable aviation fuel could be that too when when we're really dealing with that at that level.

And so it seems like the framing of part of the main goal here is that we're trying to help one of our refineries to be successful, Phillips sixty six.

So if that is a goal, I'd rather have that be an overt goal that we're talking specifically about them and what they need and that we're not trying to hide the ball or obscure that if that is actually what's happening here, that we wanna keep our refineries in business, that they're important to our economy and our state, and that this is something that they have asked for because they see this as a path forward for them.

Because and so wrecking if that was the goal, the the proposal might be structured slightly different differently. I don't know if that's the case or not. But but to me, it seems like those things are are overlaying with each other here in in a way that's really important to the conversation.

So I I wanted to ask the question though of my understanding of sustainable aviation fuel was that it's more expensive by about a dollar. And so is it what is it possible that we would do this and then it wouldn't actually be purchased, so then it wouldn't actually be used? So

the the tax credit would only be for fuel that is sold into California for use in California. So by nature, the the sustainable aviation fuel would then have to be used. I mean, I I assume it could just be stored, but the the shelf life of sustainable aviation fuel is not particularly long. So there would be be challenges there.

But and so what you're saying is you think the price would float down to the level at which an airline would buy it? So So instead of buying something else, somewhere else?

Yeah. So airlines are buying sustainable aviation fuel now. It it is it is being sold. But as I mentioned previously, the federal tax credit being decreased, and then there are other policies that that disadvantage sustainable aviation fuel compared to other renewable fuels. So depending on the literature, that incentive gap could be around a dollar 50 or higher, depending on on what incentives you're looking at.

And and if I could just add to that, I mean, it's sustainable aviation fuel oh, I'm sorry. Did you

know Yeah. No. Sorry. I wasn't quite finished yet. Go ahead.

So when you're looking at that, so that's sort of the other reason for the value of the tax credit of between a dollar and $2 is is to sort of make up that that gap to to bring parity between other renewable fuels and sustainable aviation fuel, to help decarbonize the aviation sector, as we've heard, is the most difficult to decarbonize sector. And I'll turn it over to doctor Smith now.

Sorry about that. So, yeah. So what I was just going to clarify, sustainable aviation fuel is 4 or $5 more expensive than fossil jet fuel, but there's other programs already that are providing subsidies through the federal renewable fuel standard, through federal tax credits, which were reduced somewhat. And then the state's low carbon fuel standard, but you're still kind of a dollar short.

So that's where this tax credit would come in with that extra $1.25 would be enough to sort of tilt the balance to where a refinery such as Phillips sixty six could find it more profitable to sell SAF instead of renewable diesel into the California market.

I think I really think your point that you made is about the target of the policy is a really important one because right now the way this is set up, it seems to create an incentive for anybody including the refineries that are set up in in The Gulf, for example, to produce sustainable aviation fuel and send it to California.

And so if the goal is to create an advantage for those firms operating refineries in California, Phillips sixty six in particular, you wanna do something that's gonna give them a competitive advantage in this. I don't see how this does that. It creates an opportunity for for any firm who wants to sell a sustainable aviation fuel link to California to do that.

And and there's the, you know, there's the machinations about how they would figure out how to offset, you know, the diesel excise tax and and there'd be some financial engineering to make that happen.

But but I think if I think your point is a really good one that if you want to target something, then you should target that thing rather than creating this thing that might have a lot of unintended consequences. Uh-huh. Consequences. Uh-huh.

Do and I I wanna ask Elliot for a but do you have any response to that point?

Yeah. So based on our legal analysis, in 1988, the the US Supreme Court had a very similar, sort of fact pattern case, where Ohio was incentivizing, ethanol production and providing a tax credit. The US Supreme Court overturned that and said that it was not allowed under the commerce clause. So based on the similar fact pattern here, we don't think that that would sort of fall in line with federal law and federal case law. I understand maybe the LAO has done a different legal analysis.

They've previously mentioned other hearings that they don't necessarily see the same sort of concern. So I'll turn it over to the LAO.

Thank you.

Thank you so much.

LAO, your response to this. All right.

No, I really appreciate the question and very good I think this is a key point is what is the goal of this and it seems like while it's not the sort of main stated goal that the administration has, it seems like one of the goals that many folks appear to have for this proposal is keeping particularly at least one individual refinery perhaps more in the state.

And so really thinking about like how do we if that is the goal, how do we do that and how do we not have unintended consequences that might not be as good. In terms of whether you could limit this to, you know, just California, I'm not an attorney. So but we do know that some other state policies that exist do are able to be limited to California. Right?

So it's perhaps I'm not sure whether this particular type of policy as proposed to be structured could be limited. That's something I think we'd have to consult with our attorneys on, but I would point out that the state has other policies. For example, California competes is a policy that the state has currently that just applies to California. It's tied to California jobs. We can actually pull back that money if the company doesn't produce the jobs, doesn't comply with what we want.

So that's one example of a program that's explicitly about California jobs and can be very targeted. So for example, if that was the if that were the state's goal is to kind of keep those jobs here and really have it limited to California companies or a California company at least, then we could we could create a different kind of policy. It might not look exactly like this tax credit.

It might be different, but we think there's there are other tools that could be in the legislature's toolbox to do that. And so, you know, we'd certainly be happy to work with the legislature if that were something that you're interested in doing.

Okay. Thank you. And and can could Department of Finance just address this question? I I know the governor cares about roads and potholes and paving and so, you know, can you just address that directly? The Yes.

The loss of the money to those important, values that we have.

Yeah. So the reason maybe I'll back up, and the reason why the diesel excise tax is the is the tax chosen is is because we don't believe that these corporations are very profitable, so they don't have income tax to offset. So this couldn't be sort of another sort of tax credit where you're providing tax credit credits against income tax, and it's not a refundable tax credit.

So if you think about, like, the film tax credit, that's a refundable tax credit that's that's, sort of funded by the general fund. So this the one of the largest or the largest tax liability for many of these corporations is, various motor fuels taxes, one being the diesel excise tax.

So, obviously, roads are very important to the administration. This is, you know, sort of a a difficult trade off. But as you mentioned, you know, you could backfill the lost revenue to to to make the the transportation programs whole, but still be able to provide that incentive. Where that funding would come from would be difficult, to do, obviously, given our general fund situation, sort of what where that would come from would be something that would be a difficult conversation to have.

But if that was part of the governor's proposal, then we would see that already. Right? If there was a backfill proposal Yeah.

It's not part of the proposal Right. Just to be clear. Because of the general fund situation, right, do we have limited other funding sources? As I'm sure we'll talk about in in a little while, GGRF is not necessarily a funding source. So there are limited funding sources that we have in order to be able to backfill.

Okay. Yeah. I mean, that just remains a major problem. I guess I mean, what I hear you saying is this, it's essentially a weighing of priorities. This one, the offsetting that would happen is something that we could absorb in, in the transportation sector and that this is a higher value for that, money.

And I don't know if I read that read this the same way, especially around just the statistics about which, you know, 1% of GHG coming from, aviation. And the answer that you gave, which was that that's only for in state flights, I don't know if that's something that LAO agrees with that or

Yeah. That's under our understanding as well. But we would note I think one of the thing the numbers we said, we couldn't find, like, a perfect estimate for all of California origin trips. But our understanding is that nationwide aviation is about 3% of GHG emissions. So, again, if you use that as sort of a proxy, yeah, it's probably a little bit more than the one purse it's probably more than the 1% that's inter intrastate, but it's not this isn't the bulk of GHGs.

Right? It's a it's still a relatively small contributor. It may grow over time as we hopefully decarbonize other sectors. And at at that point, again, we think we may really have to spend quite a bit of money to try to decarbonize this. But at this point, it's not the driver of GHGs in the state.

Right. Yeah. And I guess I I do think, and this was referenced in the letter that was sent by, 36 legislators. I mean, the idea that we're investing in the future, that we're, the re and I appreciate the, context that a lot of our vehicles will eventually probably be on batteries, but a lot of our, airplanes probably won't. So we'll need to have a fuel source.

I appreciate that and that the future is that we need to be dealing with this, and and decarbonizing the sector. So, you know but the the reality of, the trade offs and the bang for your buck, How much are you getting for what you're giving up? And I'm I'm having a bit of a struggle around that because of the things that I've talked about. So the last thing that I just wanted to ask is, are we coordinating at all with Washington state around sustainable aviation fuel?

Because I know that they have maybe they're a bit more advanced in this area.

And can you just talk about that?

So they're more advanced than the fact that they've they have a sustainable aviation fuel tax credit in place. However, there's a trigger for that sustainable aviation fuel tax credit of, I believe, it's 20,000,000 gallons being produced in the state of Washington, and so it has not been triggered on yet.

So I think, to this point, is that they do have renewable diesel facilities in the state of Washington, and they have not invested to shift to sustainable aviation fuel production even even with that incentive, which is a similar incentive. It's structured the same as as what this proposal is.

And and but our proposal wouldn't have a trigger? No. Okay. And do you what's the your understanding of why they have a trigger and why we don't?

I think their trigger was because there is no sustainable aviation fuel currently produced in Washington State. So the incentive was to have sustainable aviation fuel be be produced at 20,000,000 gallons, which is, I think, a fairly large amount for the state of Washington.

So Okay. So if we did this, does it affect Washington at all if we move forward with with this?

I think it'd be difficult to sort of sort of piece that together. I mean, there there could be some other knock on effects to the state of Washington, but but since their their tax credit is not in effect yet, and I don't know if there's any plans for any of the renewable diesel facilities to be converted to sustainable aviation fuel in Washington state or for the the creation of another sustainable aviation fuel refinery. So I think it's still maybe too early to talk. Okay.

Yeah. Just just one quick point on coordination. But we we do have regular coordination calls and meetings with the state of Washington, both the regulators and kind of the folks that are working in the policy space in in Washington.

And, certainly, if this were to move forward, we would have frequent communication because we don't wanna see a situation where somehow we are setting up a situation of lots of fuel shuffling happening into California that that is harming Washington's ability to meet its own climate objectives as well and we're we we work very closely with them as part of our broader put Pacific Coast Collaborative Oregon as well and and this has been a conversation that we we we have with them.

Okay. Yeah. And I mean, can because of cap and invest connection, I didn't know if that was somehow implicated in this policy area. No. Okay.

Okay. Okay. Well, thank you very much. I yield back, chair.

Thank you so much. I really appreciate the comments and the questions from from from the senators. Did you have another question, Senator?

Hold on.

I really appreciate them and I appreciate the the the the responses and also the rebuttal from each other. Because there's no perfect answer and I think that something that the the Senator mentioned that, in her comments is what are we really trying to do? And I think one of the the the question then is how many companies are currently eligible for this tech tax credit to your knowledge? So You're in California.

Yes. So so so because this this proposal leverages existing low carbon fuel standard, we actually know how many companies have sort of certified pathways that would meet the eligibility. There are four companies that currently have that produce sustainable aviation fuel that would be eligible. However, the diesel excise tax liability is the other piece where Big piece. We know that that two of the firms do not have any diesel excise tax liability and the other two do.

One of them a small amount, the other one a much larger amount.

I I I think and going back to the censors question. If we are talking about a particular refinery then we need to be very specific. I mean we we are talking about protecting jobs. We are talking about protecting communities and trying to find a way to to do this and being creative and I understand this fuels, no pun intended.

The idea that we need to find something that may help to keep that refinery here in California and keep those jobs going and keep the communities economic base going.

And again, we go to the same thing that perhaps we need to say this is what we're trying to do. Let's find a way to do that as opposed to saying we're opening this up and I think the the comment was there are four to six others nationwide who may be may be poised to take advantage of these incentives then our money that goes should go to our roads is now going out of state to produce something that we're hoping would be produced here in California.

So the a number of factors to to consider in this and that's why I asked how many companies are currently eligible, would be currently eligible for this as this is structured. I understand there's only one here in California.

That that's correct. There could however, there are other facilities in the state that could transition to be to produce sustainable aviation fuel if this proposal were to pass, which would then there's, for example, the Martinez Refinery had a public they were they received a grant from the Federal Government to, update their facility in Martinez to produce sustainable aviation fuel.

They've since put that, that on hold as a potential that if this proposal were to go into place, maybe the Martinez Refinery would continue with their sustainable aviation fuel process at the Martinez Refinery.

Okay. Could I

just have one more

Of course. Yeah. I I

just I do wanna emphasize that I I think it's important that we are thinking really strategically about how our refineries could transition to participate in the green and clean energy future. So having a sustainable aviation fuel be a future for, you know, a refinery that's currently petroleum based, you know, it is a really good thing to be thinking about. It's exciting, and it it does seem like one of the very few options. I don't know how many options there are for refineries to participate in that.

But but that seems it is exciting to think of that.

So so, you know, I I don't I I have I had a a number of negative comments, but I also just wanted to add that in because I think it's important to recognize it. Yes. Yeah. Thank you.

Yeah. And I think, I mean, you're right. When you see all of this sort of capital with billions of dollars were spent to build these things and then we're just going to let it sit there and not use it for anything. I think it's important and potentially economically beneficial to look at ways both for companies and for people who work in those places to be able to renew those facilities. But but I I I think this proposal wouldn't achieve that because it's it's open.

So if an out of state firm is is is lower cost producer now then it's still going to be lower cost producer under this this tax credit. So you're not I don't think you're doing enough or much to really help the California those operating in California versus outside if if that's your goal.

And it's it seems there would be no assurance that this would keep a refinery in California either or keep it from shutting down. Any final comments from LAO?

Yeah. I think that's absolutely the case. I think that's part of the challenge. Right? And I think thinking about these communities, they're real community impacts.

I mean, they're which are both the jobs, and then they're also the emissions impacts. They're so they're the trade offs. They're, like, you know, the EJ, impacts as well. And so those are all the things I think we're gonna have to think about, as a state, and certainly the legislature will have to wrestle with when it's thinking about this. But really, I think, you know, our our advice would be to think about what are your goals?

What is that plant? The mid we're in the mid transition. I think as was referenced by Senator Blake Spear, this is a tough time. We're gonna have refineries, you know, potentially closing. It's not necessarily gonna be at the same pace as their declines in fossil fuel.

How does that affect gas prices? How does that fit this fit in with the future of those refineries? And does this actually encourage the transition of some of those refineries even earlier and being less fossil and then have other impact. I mean, it's complicated. I think if there's one thing that I have taken away from looking at this proposal is how complex it is and how many potential unintended consequences or other consequences that we may not fully appreciate are are really a part of this.

And so I think that's one of the real challenges in trying to get your head around it, at least it has been for me. So encourage legislature to think about what the priorities are and then we can try to help work with you to craft the best way to get get at those.

Thank you. Final comments from Department of Finance?

I would just thank the the committee for the questions today. As I previously mentioned, this is a priority for the governor to help decarbonize the aviation sector. We understand that there are criticisms and we're happy to work with the legislature to help craft a more, you know, whether that be a narrow policy or something that still doesn't run a foul of the US Supreme Court decisions because the last thing we want is to have another sort of legal battle on our hands.

We don't want that. Even as an attorney, I don't want that. Final comments, professor?

I think it's two things. We've all talked about the imperative for decarbonization. I think it's important to remember cost and if we can we can do things that are less costly to do that, then we should focus on those areas. And this seems like a really costly way to decarbonize.

And then the other point just to again reiterate is that I think this policy potentially opens up a lot of unintended consequences that may happen as as we heard the the things that we haven't really thought about because these policies in this industry is so complex.

And so I think you need we need to be cautious on those grounds.

Thank you. Final comments from Card?

Maybe just just one and I just appreciate the comments about being in the the mid transition and recognizing that the the difficult place that that that puts us all in. And I will say that, you know, it is complex, but there are some, like, fundamental aspects of this transition to think about, and that is, like, the trajectory of the gasoline pool, the diesel pool, and the jet fuel pool, and how we make sure we have reliable supply for all of those.

And, historically, they all came out of the refineries. They it was they moved in lockstep. The demand for those fuels all kinda went in the same trajectory and the supply did.

They are now disaggregated. We have zero emission vehicles and vehicle efficiency in the gasoline pool. We have, you know, potential ZEVs and hydrogen trucks coming in the heavy duty fuel pool, and now we've got an aviation sector. And so thinking about how we maintain reliable fuel supply for each of these, you know, major, sources of fuel and energy in California is really important. And thinking about what the alternatives are.

If we, you know, don't have, zero emission or low, carbon fuels, we're gonna have more fossil. And what's the time frame of that transition? How long do we wanna rely on that fossil fuel? And do we wanna rely on more imports or out of state production for either the fossil or the biofuels or the other sources of energy?

And these are all aspects of this mid transition that we're in and very much of the view that the best way that we can kinda navigate our way through the transition is to give reliable and kind of affordable alternatives to to those fuel sources and to support meeting the energy demands of the state.

Very good. Thank you so much. Thank you to to the panelists. Thank you to my colleagues for the questions and comments. We'd now like to open it up for public comment.

We ask that you give your name, your organization, and we only have two people speaking. We're going to we're going to limit it to thirty seconds maximum per person.

Wonderful. Thank you. Christina Scringe with the Center for Biological Diversity. We oppose the SAF tax credit. The legislature has not yet fully funded and should first Max out funding for cost effective GHG reduction programs, and accelerating equitable clean transportation.

As you've noted, the state's been struggling with how to deal with its mid transit transition, including how to stabilize an increasingly volatile transportation fuels market. And CEC has made clear that demand reductions are a critical stabilization strategy. So I really appreciate the comments from the LAO and from Doctor. Smith as well as Blake Spear thinking about what we're losing with this. Thank you.

Thank you. You went a little over the thirty seconds. We ask we we won't put that alarm on, but

thank you. I'm Dan Leshoff, a senior fellow with World Resources Institute. We oppose the governor's proposal because it's the wrong way to accomplish two important goals that we discussed, decarbonizing aviation, and providing a just transition for refinery workers and managing that transition. It won't reduce net emissions for the reasons doctor Smith explained. It will just shift use of a very limited waste resource from renewable diesel to aviation with no net benefits.

Second, it is the wrong way and extremely expensive way to try to protect workers. We should do it directly. Thank you. I

appreciate your comments. Thank you. But you don't have to take up the whole thirty seconds.

Thank you chair, senators, panelists. My name is Gary Hughes. I work as a co director with the International Organization Biofuel Watch. And, first off, definitely in solidarity with the workers. We are in a serious dilemma, but it's a result of the can being kicked down the road.

There are a lot of environmental harms associated with liquid biofuels. And I think that whole thing has been kind of downplayed in the discussion. So we know that the benefits are not worth the harms, and something does have to be done about what's going on with the unmanaged transition that we're living in the state.

Thank you. Yeah. Thank you.

Good afternoon, chair and members. My name is Travis Bertu. I am a USW Local three twenty six member at the Rodeo Renewable Energy Complex, and I am in support of this incentive program. Thank you.

Thank you, sir.

Hello, chair and members. My name is Felix Luna, a proud member of United Steelworkers Local three twenty six, joint health and safety chair, committee chair, and resident of Vacaville and Solano County. Supporting the California staff incentives keeps California economy strong and positions the state as a leader in green energy innovation by keeping well paying jobs in our state and keeping well trained and experienced operators, technicians, and strange persons employed. I thank you all favorably for considering the staff incentives.

Thank you. Thank you.

Chair and distinguished members, my name is Nick Vigil from Vallejo in Solano County. I'm proud to stand before you today in strong support of the governor's sustainable aviation fuel incentive. I respectfully urge you to support this effort and help build a healthier and more sustainable future for all Californians. Thank you.

Thank you.

Madam chair, members, Esar Dias on behalf of p sixty six, here in support of the tax credit,

Sends a clear message that the

state is serious about keeping fuel production and the jobs that come with it in state rather than losing that investment to competing markets. For companies like p sixty six, these are long term capital in terms of decisions, and this type of incentive helps anchor those investments here. Lastly, we agreed that an amendment is needed to focus the tax credit to fuel produce and sold in California. This can significantly limit the impact on the road, construction and maintenance funds. Thank you.

Thank you.

Good afternoon, chair members. My name is Jared Wittry. I am the director of operations for the Rodeo renewable energy complex. One item I'd like to challenge on the ALEO and the HAAS report is the increase in gasoline prices. When with the methods of producing SAF, you actually make more gasoline range materials, so that would increase the supply of gasoline to the state.

So I respectfully ask that you, support the governor's incentive for, SAF tax. Thank you.

Thank you.

Good afternoon, chair and members. Thank you for for having me, today. My name is Tony Vanyenco. I'm a resident of Concord in the Contra Costa County. I would like to ask you all to support the staff incentive today.

It helps support well paying jobs in the California economy and also provides a good market for green energy. So I humbly ask you to support this incentive. Thank you.

Thank you.

Good afternoon. I am Rene Shriver. I'm a resident of Alameda in Alameda County. I'm also an employee at Phillips sixty six Refinery. I'm here to to request the support of the sustainable aviation fuels.

Thank you, sir.

Hello. My name is Evan Jones. I live in Berkeley, California. I work at the Rodeo Renewable Energy Complex. Really proud to have a good paying job in the energy sector here at green energy sector now.

So please consider passing the incentive. Thank you.

Thank you.

Good morning, madam chair and members. My name is Derek Vines. I'm also a employee at Phillips sixty six Rodeo Renewable Energy Complex. I'm a long time member of the community there in Rodeo, since 1974. I have family, two brothers that, were operators there at the facility.

I've seen, what this facility has done for the community and for the families that lived in the community and the opportunities, the economic they provided, for families in the community. This the members, live in three different districts. In short, I support the tax incentive and, hope that you do as well. Thank you.

Thank you.

Hello, everyone. My name is Eddie Castaneda. I live in Pittsburgh, California. I'm a proud apprentice for Local three forty two. I started my career three years ago.

I have Phillips sixty six has helped me support my family for those three years. Staff will keep my career and my family moving forward in a positive direction. Thank you.

Thank you.

Good afternoon, chair and committee members. My name is Sanjay Prasad. I live in Hercules, California, which is in the Contra Costa County. I'm here to support our governor's incentive on the staff. Please join me and my family.

We care for the environment. We want our kids and our future kids to breathe clean air. So please, I appreciate if you can support that to pass the bill. Thank you.

Thank you.

Hello. My name is Paul Hollage. I work also work at the, Rodeo Energy Complex there. We are making sustainable fuels. I appreciate the professor's, encouragement, about carbon fuels, but we have we were a carbon fuel complex.

We have switched over sustainable fuel because the governor and we believe in clean air and clean aviation fuel. Please go ahead and continue to support our community and support this because we have to have a way, a segue into going to clean fuels. And we've done this at our refinery to keep it going.

Thank you. Thank you.

Good morning. Tim Sabrani, Contra Costa, Building Construction Trades Council here to speak in support of SAF. I also wanna say our members, we do local streets and roads, so we care about that too. We think that's a false choice. We think there's ways that we can do both.

And also just wanna say, you know, it's not let's lose sight not lose sight of the bigger picture. This is something not in the abstract to increase decrease greenhouse gas emissions, something we can do today, and we can protect good union jobs while we do it. Let's not overthink this. I thought the gentleman from CARB did a fantastic job outlining the benefits, and I hope the committee takes that into consideration, and we should keep it in state. Thank you.

Thank you.

Good afternoon, madam chair, members of the subcommittee. My name is Graham Noyes. I'm a fuel and carbon attorney. I've been working for ten years for dedicated SAF producers, who have built this industry. I'd like to make clear this is not a SAF incentive.

This is a p 66 bailout bill. To make this a great SAF tax credit, the tax credit should be transferable and available or available to all producers, and the life cycle analysis should be tech neutral and follow the inflation reduction act 45 z, and core c approaches. Thank you.

Thank

you. Good morning, panel. My name is Dario Anderson. I'm a resident of Fairfield, California. I'm here to support the tax incentive only because it not only supports jobs, open jobs, but I believe California always speaks about being a green state, and I believe this is the step in the right direction.

So if we wanna make California green, let's go ahead and make the right choice. Thank you.

Thank you.

Good afternoon. My name is Tommy. I live in Solano County. The staff incentive isn't only about investing in credits. It's about reducing the carbon emissions and stand behind the bar that was set for the long long term goal.

It's about securing California's leadership in clean energy and creating jobs with future technology. Please stand with us and support staff to keep active and potential renewable energy complexes in California. Thank you.

Thank you.

Hello, Lauren. My name is Scott Christopherson. I'm a resident of Contra Costa County and a Phillips sixty six employee. I asked you guys to consider not only Phillips sixty six contribution and what they've already contributed into what you guys have asked them to or not you guys, but California as a whole on the carbon footprint. Right?

So they've already invested billions of dollars on the conversion, and then it just seems that we're not getting the support by following those rules. So please consider the efforts and also the job placement for, you know, that community as a whole. It's very, very stable, you know, income. And as it is

Your time's up.

Okay. Thank you. Sorry.

Support it? You want us to support it? Yes. Support it.

Great. Thank you.

Thank you, sir.

Morning, chair members. My name is Trevor Russell. I'm a third generation family member that works at p sixty six, and I'm asking you guys to support that bill, please.

Thank you.

My name is Ralph Alter. I live in El Sobrani, California in Contra Costa County. I've been an employee of the Phillips sixty six refinery. Please support this bill. It makes a big difference to the communities.

These jobs are generational. The spread of wealth through the communities is going to be hard to measure. You may have a real real measuring stick in Benicia here pretty soon. It's it's not pretty what's gonna you know, when some when a big industry leaves. I've grew up in the Bay Area.

There was industries like this everywhere. They're gone. These jobs are going away, and they make a big difference for people.

Thank you, sir.

Good afternoon, panel. My name is Johan Maddox. I live in Fairfield, California. I grew up in Contra Costa County. I've been here and out of refineries for the last thirty seven plus years and I was here to help support the South, program and hope you will do the same.

It opened up a lot of jobs. I see a lot of new faces, new people running out and it's been taking care of my family for years. So I hope you guys please stay behind it.

Thank you, sir.

Good morning good morning, board member. My name is Aaron Yarbrough. I reside on Walnut Creek, California. I just wanted to say I was listening to the hearing earlier, and there were questions about the difference between the SAF and the fossil fuels. Well, it has the when burned, it releases new c o two into the atmosphere, which that carbon was previously locked away, but now it adds to the total atmosphere carbon.

But the South is made of carbon sources like plants waste waste oils, agricultural residue, and plants absorb c o two in the area while growing, and they send it back out.

It's recycled.

You want us to support it or not support it? Support it. Very good. Thank you.

Good morning, chair and members. My name is Derek Henry. I'm a USW and welcome three twenty six member, retired Navy after twenty four years of serving, and a resident of Fairfield. After serving my country for over two decades, I now take care of my family with a good USW playing job, local playing job. This is why we support the governor's staff incentive, and we're asking you to support too. Thank you.

Thank you.

Good afternoon, chair and members. My name is Joe Jawad, president, United Steelworkers Local three twenty six, representing about 250, union workers at the RHNAult Renewable Energy Complex. Local three twenty six has been there ninety two years serving that facility. You know, the the simple of when when state of California called for cleaner fuels, our our facility answered. We transform a traditional refinery into renewables remote renewable fuel operation, producing, renewable diesel and sustainable aviation fuel, and our members made that happen. I ask for your support. Thank you.

Thank you. Hi. Good afternoon, chair and members. My name is Angelie Goraya. I'm a proud member of USAW, and I'm a resident of Solano County.

And I'm here to support the SAF incentive program. I hope you guys support it too. Thank you. Thank you, ma'am.

My name is Arturo Torres. I'm a local one fifty two carpenter, and I'm here to report to staff, and I hope you do too.

Thank you, sir.

Good afternoon, madam chair, committee members. My name is Michael Miller, and I live in Benicia. I'm here in support of the sustainable aviation fuel package. I've seen in my city what happens when a petroleum refinery does not see economic value to continue operating. This incentive advances California's nation leading climate goals while supporting good paying jobs and furthering clean energy investment in our state, and I ask you to support the governor's budget proposal.

Thank you.

Thank you.

Good afternoon, board. My name is JC Navarro. I live in Richmond, California. I've been in this industry for, like, twenty one years already, and looking for your support too for the SAF incentive.

Thank you.

Good afternoon. My name is Leah Abraham, and I live in Berkeley in Alameda County. I'm here to support the governor's SAF initiative. It supports clean energy and jobs in California, so I respectively ask you to support this as well. Thank you.

Thank you.

Good afternoon. My name is Cynthia Fife, and I would like to offer my support for, these SAF initiative. And I am a an employee at the RREC, and that's what I got. Thank you.

Thank you.

Good afternoon. My name is Ted Wickers. I'm the USW three twenty six unit chairman. I've been at the facility since 1983, Union Oil of California, and I can tell you this is the best thing we've done. More importantly, I've heard enough to know we're a savvy enough group to pull this together to keep this facility open because we need fuels. So thank you for supporting

our Thank you.

Good afternoon, churches and members. My name is Jesus Biones from Turlock, Stylus County. I was trying to support the Governor's South. This process is a direct investment in California's future, creating high quality local green drops and blustering our agriculture community by cooperative waste products into fuel. Stretting in the state's production keeps our economy competitive while moving us towards a cleaner future. I urge your support. Thank you.

Thank you.

Good afternoon, chair chair members. My name is Elizabeth Terry. I live in Salonia County. I am here to support the governor's staff program for a good jobs and a clean fuel future. Please support it with us. Thank you.

Thank you.

Good afternoon, chair members. My name is James Couch. I live in Crockett, just four minutes away from the from the plant. I'm a member of Local seven forty one. I'm a painter.

I support this bill because projects like this, they just show, they show California really leading the way in innovation for cleaner energy. It's not just about protecting the environment, it's about creating jobs. It's about strengthening communities, and it's about building a more sustainable future right here at home. Please support this bill.

Thank you.

Chair and members, my name is Joseph Graziano. I live in Manteca, a proud member of Painters Local seven four one. I'm here today to support the incentive, supports the jobs here locally, and will help reach the ultimate goal of the SAF Grand Challenge for DOE. Thank you.

Thank you.

Good afternoon, chair members. My name is Amy Henry. I live in Fairfield, California. We've already made real measurable progress on air quality right here in California. At our facility, we've reduced SOX emissions by over 80%, particulate matter by 20%, and NOx by 33%, delivering cleaner air for our communities.

And we're doing it using waste based feedstocks, waste oils that would be otherwise go into the landfill. SAF builds on that progress. It's one of the only solutions, and I support the governor's incentive package. Thank you.

What did you say you work? I work at the Rodeo Renewable Energy Complex. Thank you.

Good afternoon, everyone. My name is Tida Escalada, and I'm a resident of Rodeo. And I represent the Hercules Rodeo Crockett Rotary Club, and I am here as a partner of Phillips sixty six because they are our sustaining partner for all the projects and programs that we do in the community. We are talking about all of this tax credit that they would be getting, but at the same time, we have to remember the millions of dollars that they're actually pouring out there in the community.

A lot of the programs that we do out there is because of the support of Phillips sixty six.

And we do we have just dealt with program on the homelessness, which they are spearheading right now because I think every single one of us who lives in this community, we have that issues. We need to be able to take care of that. Thank you. I support. Thank you.

Good afternoon, everyone. My name is Franklin Gordine. I'm a proud local member of three twenty six. I support the governor's SAF initiative, and I'll be to do two. Thank you.

Thank you.

Good afternoon, chair and members. My name's Enoch Yacopo. I'm part of a proud member of USW Local three twenty six and one of the 600 families that will be affected with this staff incentive decision. I ask that you please vote in his favor. Thank you.

Thank you.

Good morning, chair and members. My name is Parab Borenstead. I live in Benicia and Solano County, and I also am a proud member of USW Local three twenty six. I'm here today to support the governor's staff initiative, and I work in a facility alongside over 600 people, many of which are union jobs. We produce renewable fuels from Rodeo, which are reducing emissions today.

This transacts this transition is exactly what the state asked our industry to do. SAF as a solution is here now. These are just some of the reasons I support it and kindly ask for your support as well. Thank you.

Thank you.

Mariela Rocha with Leadership Council and Justice and Accountability. We strongly so agree with the LAO's recommendation to oppose staff tax credit. We agree with the biofu we agree that biofuels are expensive and often do not result in net GHG reductions and do can pose, harm to local air quality, and this policy would result in a loss of revenue to critical local transportation funding. So thank you.

Thank you.

Good morning. Ada Welder with Earthjustice and also here to provide comments on, behalf of the Union of Concerned Scientists. We're opposed to the tax credit. If this is, an attempt to reduce our greenhouse gas emissions, we should be investing into transportation electrification. And if it's to help refineries, then we should more narrowly tailor, to support the one refinery.

Thank you very much.

Thank you.

Good afternoon. My name is Paul Webster Bragg, safety regional, director. I'm here in support, of the bill. Couple words, one what I'm gonna say for the next thirty seconds, thirty seconds is generational. P 66 is generational.

I've started working there since my son has worked there. He's now an X-ray tech. One of my best friends, Mike Miller, who since passed, a great guy. His son works there. So just imagine, your whole life going through p sixty six and seeing generational things.

One thing before I leave here, I wanna say, just imagine, this is how we start our day at p sixty six. Our conversation is about environment, communication, community, and safety before we even touch a tool. P sixty six is generational saving lives. Thank you.

Thank you.

Hi, everyone. My name is Sean Gibson. Pleasure to meet you guys. I'm a resident of Alamo in Contra Costa County. I came here today in support of the governor's SAAP proposal.

California has always prided itself on recognizing and investing in the innovation and technology of the future. This bill, I believe, supports that. It also will support and maintain current jobs as well as potentially future jobs. So thank you again and support.

Thank you.

Good afternoon. My name is Aureliano Ochoa, and I'm here representing the Heat and Frost Insulators Local sixteen. And on behalf of my membership and myself, we are in full support of this. Thank you.

Thank you.

Good afternoon. My name is Ardo Garcia. I'm a proud member of Local sixteen. I'm here to show support.

Thank you, sir.

My name is Hanson Flores, and I live in Antioch. I'm currently working at p sixty six, and I'm here with full support on the bill and hopefully your support as well. Thank you.

Thank you. My name

is Victor Hernandez. I'm with Heat and Frost Insulators Local sixteen, and I am in support of this bill. Thank you.

Thank you.

Good afternoon. Nick Chappee here on behalf of the California Trucking Association to comment on item one. The tax credit proposal would increase the trucking industry's reliance on fossil diesel as production of renewable diesel was substituted for SAF. Biofuels such as renewable diesel have been critical in reducing GHG emissions in the transportation sector. This proposal would reverse the historical progress the state has already made with decarbonizing the transportation sector.

As noted by the analysis, the price of diesel could increase by 12¢, and net reduction in carbon emissions would be small and expensive. For these reasons, we urge the committee to reject the proposal. Thank you.

Thank you.

Hello. Thank you. My name is Randy Thomas. I'm the business manager of Boilermakers Local five forty nine in Pittsburgh, California. Represent members that work inside of Phillips sixty six and help to build the facility.

We are in support of this here, and please allow us to continue to keep making fuel here in California at the highest labor standards and environmental standards in the country.

Thank you.

Good morning. Kathy Van Austin on behalf of United Airlines. I we strongly support this proposal. We do support it for in state production. We think that would help tell tailor and alleviate some of the concerns on, the the hit on the diesel tax.

Senator Blake Spear had, suggested that maybe we can buy SAF from other states. Other states do have incentives. Right now, Chicago has the richest incentive in in this in The United States. That's where all the SAF is going. That's where the SAF is going to be used.

If we wanna use it here in California, we need to have the incentive here to keep it here and use it here. So we strongly support the proposal. We don't have other alternatives.

Thank you.

Good afternoon, chair members. Evan Georges on behalf of the Boeing Company. We echo the sentiments of our airline partners. And while we appreciate the and we appreciate the administration's effort to provide an incentive to produce more staff in California. While Boeing is hard at work developing alternative technologies and each generation of planes is more fuel efficient than prior generations, SAF is the only pathway to zero emission zero emissions within the aviation sector until at least, the next three to four decades.

Additionally, no replacement technologies currently exist to carry a 150 passengers a thousand miles or more. We look forward to contributing to the CARB and AFRA working group to develop other efforts to expand the production and use of SAF in California to help reach our industry's goal, of net zero by February. Thank you.

Thank you.

Marjorie Liu with Samsung Advisors here on behalf of the Alaska Air Group, in strong support of the SAF proposal and aligning our comments with Boeing and United.

Thank you.

Good afternoon. Todd Welch, proud five forty nine union member in USW. I'm from Fairfield, California. I live in in Solano County, and I'm here to support staff.

Thank you.

Hello. My name is David Bulkley. I work at, Phillips sixty six in Rodeo. I live in Concord, California. Just like to say that Phillips sixty six has done an excellent job with their renewable energy complex.

They've gone above and beyond with California wanted with our solar field, brand new, top of the

line, renewable energy complex. They're not set or they're not ready to go. They are going. They're making the best aviation fuel diesel that you can get. I don't know why California isn't bragging about their awesome renewable energy complex. Thank you.

Thank you.

Hi. Good afternoon. Grishina Mohibir with California Environmental Voters. I wanna echo the comments made by Earthjustice and Leadership Council. We have to use our state transportation dollars sparingly and shouldn't be moving forward with a new tax credit for a fuel that already receives existing subsidies and yields dubious air quality benefits.

This proposal would also benefit out of state producers when we need to focus funds on in state transportation investments. Thank you.

Thank you.

Good afternoon. Lauren Weishe on behalf of the California Airports Council representing the state's 31 commercial service airports. We are in strong support of the SAF tax incentives, specifically in state production. Thank you.

Thank you.

Good afternoon, chair, and members. I'm here on behalf of the Riverside County Transportation Commission urging the rejection of this governor's sustainable aviation fuel tax credit proposal due to transportation program impacts. Thank you so much.

Thank you.

Good afternoon, madam chair, Jack Yanes, behalf of California Fuels Convenience Alliance representing fuel retailers and marketers across the state. We respectfully oppose the proposed SAF tax credit fees that create significant fiscal risk while delivering limited climate benefit. Independent analysis shows it could raise gasoline diesel prices by 10 to 15¢per gallon, adding billions in annual cost for consumers while also reducing diesel excise tax revenues that fund road repairs. The benefits are narrowly concentrated, but the costs are widely shared.

We respectfully are due to reject this proposal.

Thank you.

Thank you.

Good afternoon. Iria Rapitan on behalf of the California Asphalt Pavement Association. We are strongly opposed to the sustainable aviation fuel tax credit proposal, which according to the LAO would steal millions over the next ten years from funds that are dedicated to repairing and fixing the roads. Our organization and many others pushed hard to pass as b one to secure road funding, and we strongly encourage you to reject this proposal to protect road funding in all the job jobs it creates. Thank you.

Thank you.

Good afternoon. Mark Neuberger of the California State Association of Counties registering our opposition to the sustainable aviation fuel tax credit because of the negative impact it would have to the local streets and roads programs and the millions of dollars that local streets and roads needs to make up to their maintenance needs. Thank you.

Thank you.

Good afternoon, chair members. Vincenzo Caparelli here on behalf of the California Associates Association of Council of Governments to register our opposition to the governor's proposal to establish the sustainable aviation fuel tax credit. Similar to other groups, our concerns are centered around what the impact will be to transportation funding programs that our members rely on. This is particularly problematic as we are facing major transportation funding shortfall over the next decade. We urge you to reject this proposal. Thank you.

Thank you.

Good afternoon, madam chair, members of Wes Franco here on behalf of Southwest Airlines, who supports a sustainable aviation fuel tax credit proposal, which keeps the aviation industry on track to meet its greenhouse gas emissions goals. Thank you.

Thank you.

Damon Compton with the League of California Cities. Respectfully oppose the SAF tax credit. Our members are responsible for maintaining the state's 147,000 center line miles, and with s b $1 declining, our cities are having to do more with less, and this proposal further set back our deferred maintenance. And so for those reasons, we're opposed.

Thank you.

Sarah Brennan, NextGen California. We are in opposition to this, the sustainable aviation fuel tax. Thank you.

Thank you.

Hi. My name is Liat Carlisle here with the Cascadia Sustainable Aviation Accelerator, a nonprofit headquartered in Washington. We really can't understate the importance of SAF. A 150,000,000 gallons at SFO alone would reduce the airport's jet fuel emissions by 13%, equivalent to 3,200,000,000 vehicle miles traveled. In Washington, we wanted to prioritize in state production to ensure that we received all the benefits that come from SAF production, which was the reason behind our 20,000,000 gallon trigger in our tax credit.

In California, we're lucky to have a facility that can already produce that scale. I urge you to join Washington state in adopting this tax credit so that the two states can continue to lead the region in climate action as we link our carbon markets.

Thank you.

Good afternoon, committee members and chair. My name is David Schoenthaw. Reside in Concord, California. I'm here to support the Rodeo renewable energy complex and the governor's staff incentive tax credit. Thank you.

Thank you.

Hello, chair and members. I'm Justin, Nye House. I live in Benicia, California, and I'm, here to support TAF. Thank you.

Thank you.

Hello. My name is Joshua Ward. I'm a proud member of USW Local three twenty six. I'm here to support staff. Thank you.

Thank you, sir.

Hi. Juanita Martinez on behalf of World Energy and, Gevo. We are manufacturers of SAF, and what we are asking for is opposed and less sorry, opposed and less amended position on this particular bill. We're asking for transferability language that would allow all producers to be able to participate.

As long as we are opening the door and allowing all, producers to participate, we increase the consumption here in the state of California, and we begin to see the emissions that are, that can be generated here in the California.

But once we limit it as the current proposal is done, then we see those consumption levels going over to other states, and we'd like to see the consumption levels here. So we ask for transferability. Thank you.

Thank you.

Morning, madam chair. Timothy Jeffries, international brother to Boilermakers. I'd like to thank for the opportunity to stand in support of the SAF SAFPO SAF SAFPO. And then for the jobs and the economies that it's gonna build out. I mean, there are a lot of jobs in the building trades in these in sectors that are that are build out local economies that change people's lives.

And the building trades of our job, the bottleneck is another job is one of those opportunities that we have a state accredited apprenticeship program that, six thousand hour four year apprenticeship program that keep those investments local in those local economies and those areas that they support those industries. So we ask your support for this bill as well. Thank you.

Thank you.

Chair members, thank you for the opportunity to speak. I'm Bobby Thomas, the vice president of the Rodeo Renewable Energy Complex. We stepped up when the California asked for us to convert our petrochemical our petroleum refinery into a renewables facility. We did just that and sustained the jobs there. I like to respectfully disagree with LAO and the HAS report.

When it comes to switching, our facility is one of those that can do both produce both diesel and sustainable aviation fuel at the same time. We're doing so now. Thank you. I'm obviously in support. Thanks.

Yes, sir. Anyone else wishing to provide a public comment on issue number one? Seeing none. This concludes issue number one. Did I hear applause?

A very important topic and I appreciate everyone's participation in it. Thank you. We'd like to now move to issue number two. Greenhouse gas reduction fund expenditure plan and trailer bill language. First, we're gonna hear from Brandon Merritt from the Department of Finance who will present the governor's proposal and then from Helen Kersting from the Legislative Analyst Office.

Okay. Good afternoon, chair. My name is Brandon Merritt. I'm with the Department of Finance, and I will be presenting the overview of the Greenhouse Gas Reduction Fund budget as detailed in issue two. The twenty twenty six governor's budget estimates auction revenues of approximately $3,800,000,000 in twenty twenty six, twenty seven.

The governor's budget proposal for the 2627 cap and invest expenditure plan reflects the updated structure pursuant to SB 840. 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 feedback fill, and the legislative council climate bureau. Tier two includes $1,000,000,000 for the high speed rail authority, and $1,000,000,000 for other discretionary items.

Of the $1,000,000,000 in discretionary funding, 250,000,000 is reserved for various investments identified in SBA 40.

The remaining 750,000,000 from the $1,000,000,000 in discretionary funding supports the CAL FIRE general fund backfill. Tier three funds previously percentage based continuous appropriations that will now be capped dollar amounts beginning in twenty twenty six, twenty seven 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 $1,400,000,000 estimated for tier three.

The governor's budget maintains the 2025 budget act agreement to support Cal Fire operation costs with $1,250,000,000 GTRF in twenty twenty six, twenty seven, 500,000,000 in twenty twenty seven, twenty eight, and 500,000,000 in twenty twenty eight, twenty nine. Finally, as will be discussed in issue three, the budget, includes $115,000,000 one time GGRF to support the $200,000,000 zero emission vehicle incentive proposal.

The governor's budget also proposes trailer bill language to make technical and clarifying changes to SBA 40 to allow impacted departments and programs to more effectively implement the intent of the updated GGRF GGRF expenditure plan. That concludes my presentation. Thank you for your time. I'm happy to answer any questions.

Thank you. Elio?

Good afternoon, Chair and Senators. So there's really kind of two pieces of this agenda item. There's the trailer bill and there's the expenditure plan. So I'll provide comments on both, if you'll bear with me. First, on the trailer bill, we understand the administration intends us to be technical and clarifying, but there are some sort of, we think, significant questions before the legislature about is is the way that the the governor's proposing to implement this consistent with what your intent was?

And is this really just clarifying, or is this making changes to what you intended? So there are a couple places I wanna just highlight in the trailer bill for you to consider. One of them is how interest income is treated and also the entering fund balance, whether that should be part of that SB 840 framework or whether it should be considered outside of that and considered discretionary revenue.

So, the governor, the governor, I think their understanding of the agreement was that those should be considered outside of SB 840 and so they're clarifying that in the language. Outside of SB 840 and so they're clarifying that in the language.

So if you're comfortable with that, that then approve this. If you have a different understanding, then you may want to clarify that in a different way. Another piece is they are clarifying how state operations costs are treated under this framework. So they're clarifying that those are part of tier one, basically getting top priority. And they're already sort of implicitly getting pretty high priority, but it sort of just provides a little bit of clarification on that.

So, again, I think what that has some potentially important implications because, you know, if they're way up in the priority and then as you add more types of activities to that tier that state ops category, it means there's less for the the other categories. And one of the things that we've seen and we talk about the expenditure plan, you'll see is tier three, for example, in this upcoming year is not anticipated to to be fully funded and that may be the case in future years.

So really thinking about how much do you add to tier one or those top tiers because it has effects on those those remaining tiers. And then the third thing that that we are suggesting legislature consider is really what kind of flowing from that, a key question is, what do you think should be included in that state operations category? So do you wanna provide some more specificity or some more direction to that?

Because, again, the more the more you put in there, it kind of becomes a one light item, so it's not all broken out. But the more that's in that, the less money is available for other activities. So that's really a kind of a policy question for you. So those are our comments on the the trailer bill.

Just on the expenditure plan, I have a few high level comments I'd also like to provide quickly, hopefully, because I know we are well into this hearing already on issue two.

The first is that we think in general the administration's proposal is appears consistent with some with past legislative agreements. You heard from the Department of Finance that they're proposing 1,250,000,000.00 for a CAL FIRE backfill. That's consistent with what was in last year's budget bill. And then also $250,000,000 for intent items that were in SB 840, so that also appears consistent. And the new thing really is that ZEV proposal, so that's a new discretionary thing that they're adding.

Again, the amount that's available for those activities is is partly because of that structure and how they're implementing the bill. And then we would also just flag for the committee that there were some agreements in 2425. There was an out year GGRF expenditure plan that as part of, recent agreements, that's no longer the administration is no longer putting that forward.

So, for example, you know, I think as of 2425 at least there was an expectation that this year there would be more transit funding, and there would be, you know, more funding for example for the clean energy reliability investment program as well as some other activities. So those are no longer included in the administration's plan.

So wanted to flag that for you as well. And then in terms of our overall comments, this really fits with the theme where the bearers of bad news, it seems this year, but we think that state is really facing some pretty significant budget challenges even

despite some robust revenues that we've seen recently. GGRF can be a really important tool for you because it is pretty flexible. So we're gonna we're recommending that you think about is this plan, you know, in general, we think it makes sense to stick with your existing commitments.

But given the the nature of the budget challenges, we think it could be appropriate to just revisit them, make sure they are still your highest priorities for those limited dollars, and also be really careful about and sort of have a really high bar for new funding proposals as well. So, those are my high level questions happy to or comments happy to take questions.

Thank you. Very good. Let's bring it back to the dice. Well Sam Turner McNerney.

You're looking at me there. So I

guess I'll start off. Last year, we were fighting over the whether we were gonna move forward with the GTR program. This year now, it looks like we have to decide how we're gonna spend the money. My first question is to the LAO. How confident are we of that 3,800,000,000 income?

Or is that something I should be aiming at Andrew? You're the one that gave it to Andrew, so I guess I'll Yes.

I'm I'm happy to take that. So that $3,700,000,000 figure, that was sort of our projection based on the auctions that happened to date January since the auctions have come in a little bit lower. We saw the last auction in February sell at the floor price. So we would anticipate that at the May revision, we would have a downward revision to our our greenhouse gas reduction fund, revenues. So

expect I

would expect them to be lower, than what what we have at governor's budget.

Okay. Well, that's not the good news we were hoping for. Where's our optimistic from car beer? No. The couple of programs I'm excited about, the farmer program replaces dirty diesel agricultural equipment with low and zero emission equipment.

This is extremely beneficial and I think it really is in with the spirit of the GDR program. Second, healthy soils and the newer management program. I think healthy soils farming practices will help absorb carbon emissions, carbon from the atmosphere. And the manure management program, I think, will also be beneficial both in terms of greenhouse gas emissions and in terms of water quality. So it's a highly effective, good rate of return.

Food, production incentive programs, the FPIP, FPIP, at the CEC helps food producers replace dirty production equipment with much better equipment, more efficient. And then a couple of other things. I'm in favor of the government's ZEV program and and especially with proposed light duty vehicle SITIV. And lastly, I have a little project I'm working on. It's SB 8872 to help pick up the the the the aqueducts that are subsiding in the valley.

And then also at the same time, work on the, levees that are facing imminent failure in in the Delta. Both of those, will have enormous impact on Southern California water supply, incredibly important to the state. Supplying water is probably the most important function of the state of California. We need to make sure that that happens.

I'm not totally focused on GGRF money for that process of that project, but it would be helpful if we could get some money from GGRF to secure California's water for the future.

So those are my, comments. And I yield back.

Yes. Thank you. So as I previewed in my previous comments, I am really concerned funding for transit. The administration is silent on more than 700,000,000 in prior year funding commitments for transit. And I know that we have a lot of priorities, but it it is true that in in my district, in the 38th District, which is Southern California, the operators, MetroLink, North County Transit District, MTS, and OCTA are all struggling to fund current operations in addition to the state required zero emissions equipment.

So, you know, we're I I I guess I just wanna turn it back to ask, like, what is the plan for transit? And, you know, I see this new, proposal for, ZEV, and I wonder about that decision making. So

Yeah. So, so as I LAO mentioned, so as part of last year's sort of budget agreement, this discretionary funding plan that was agreed to in 2425 had to be put aside to support general fund activities. So the the funding that you're referring to, Senator Blake Spear, was previously agreed to in 2425.

But since because of the dire situation of the general fund, we've we've need to use that discretionary funding and instead of for that that plan, including transit funding to support general fund to avoid further health and human service cuts. So it's a difficult trade off.

It it doesn't it doesn't mean that that funding wouldn't be put forward in the future. Part of the agreement was 1,250,000,000.00 in 2627, and then that the general fund shift for Cal Fire drops to 500,000,000 in '27, '28, and 2829. So theoretically, there would be an additional potentially at least $500,000,000 for discretionary funding in 2728, and 2829. However, if g g r f revenues exceed the total allowance under SB 840, then there would be other other funding available. And and Yeah.

So I'll just leave it there.

But, I mean, maybe more to the point about, you know, transit as a priority.

Yeah. So, I mean, the the administration continues to support transit. Recently, there was the efforts to to provide the the short term loan for for transit operators in the Bay Area. There's still additional funding that's been provided for transit, just not not sort of the full amount. There are billions of dollars that have been provided over the last few years from GGRF and and general fund.

I'll turn it over to my colleague from the that covers the transportation transit assignment to provide more detail.

James Moore with finance. I echo everything that my colleague said. We did provide several billion. I think it was $8,000,000,000 to transit on a one time basis in the last several years over the multiyear transportation package. The key state programs like the Transit Development Act, various other programmatic, sorry, formula and competitive programs remain in place.

In addition to the one time loan that was going to be issued from Calista to the Bay Area agencies, Calista stood up a transit transformation task force that brought different transit stakeholders from across the state to figure out how to move forward. So it remains a priority of the administration. The vast majority of the one time additions to transit remain appropriated and the the ongoing programs are intact.

Okay. Yeah. I mean, I'll just I I do wanna acknowledge that there was an enormous amount of money. I mean, I thought it was 5,000,000,000, not 8,000,000,000, but an enormous amount of money went to transit agencies. And part of that was, the SP one twenty five funding that was paired with the Transit Transformation Task Force, which was led by CalSTA and produced a incredibly underwhelming report, which has not resulted in any any legislation.

So having the transit transformation task force led by the state, by essentially the executive branch, come up with things that we already know, identifying we don't have a stable revenue stream. We need better interoperability between transit agencies. We need to invest in clean energy. You know, the the sorts of things that we already know. To me, it doesn't mean that our the work is done.

It means that we didn't quite get there. So so if a state if as a state, we do value transit, we need to be thinking in an energetic way about how we're gonna have reforms on the the, which was the point of the transit transformation task force. The reforms on the operation of transit, but then also the balance of how much money are we providing for new equipment.

If new equipment is driving around and it's clean, but there's nobody in it, or it's so infrequent and it's so unreliable that no one takes it. You know, these are all the really important questions that we have to get to in order to make transit successful.

But, you know, it is really important when you think about the ways to create GHG reductions and also to improve community well-being, Having a a better functioning transit system is a really key part of that. So so the the administration and the legislature together saying this is something we prioritize, and we wanna figure out how can we have the reforms we need and also fund it at an appropriate level instead of just saying, well, we funded it, and now it's dropping off a cliff.

And I recognize that the Bay Area got together and said, we're we would like to request a loan. And after a lot of, back and forth and hand wringing, the state is giving them a loan, but that's still not handling the rest of the state, and it's only a loan. And so it is, you know, it that's not exactly a bold investment, I guess, I would say, a a loan to to the Bay Area transit agencies.

So I would just continue to advocate for us to be to be more muscular, more committed, more verbal, more invested in our transit system. And, you know, a series of decisions that go across this this item and then the item before that are resulting in less money and less money for transit and no reforms on operations, you know, does just to me is not indicating where we wanna be going.

So I I would just continue to say that I I hope our North Star can shift a little bit. You know, I do note that there's a 115,000,000 to create a new light duty ZEV incentive program. You know, that's a new program in the same area where we already have other programs in that area.

So, you know, that's a decision that's being proposed by the governor's office to to do that instead of to invest more in transit and and and any of the different ways that could be possible. So I I I am, concerned about the new programs. The LAOs, references that that we should have a very high bar to say we want new programs.

So this new light duty ZEV incentive program to me is something that I don't know if I would identify as the top priority, given very limited and reduced revenues in this area. But, you know, I I I mean, I welcome any responses to that, but it does it does seem to me like what we've done isn't quite enough, and it doesn't mean that our work's over.

Sure. And and I think your point is well taken. I think, we're continuing to talk with with transit agencies around the state and are always open to to what will serve them and the state and, remain committed to providing a functional transit system.

Thank you.

Just one one or a couple points if I if I may. Just that the there is still the, you know, the the TARCP and low carbon transit operation program funds in in tier three for the transit entities that continues. And and part of the agreement with SBA 40 and AB 127 is to continue that to 2045, where previously it would have ended in 2030 to provide additional funding.

And then just to to go back to this 2024 plan, the majority of the funding that's actually remaining was actually is actually was actually for zero emission vehicle programs. So in for example, in 2627, what was scheduled was about 250,000,000 for transit programs, but nearly 600,000,000 for zero emission vehicle programs.

So just sort of just to call back to that, these sort of investments, although there are choices to be made and and difficult choices to be made going forward, is that we're we did have a framework to work from broadly for these GGRF investments going forward.

An overall question I want to ask. What was anticipated from the auction when this was put together? What was the dollar amount that we were anticipating?

So I think it's difficult to to say. So so prior to the reauthorization, we saw depressed auction revenues to where even in May of last year, not all of the allowances sold. So we are coming into the reauthorization in a fairly precarious situation, I think, as far as difficulty to to project auction proceeds.

And since then, I would say, and since the reauthorization, there's still been, I think, sort of a depressed market. It's been, it's been trading or it's been selling near the floor, slightly above the floor. You know, we think part of that is due to that there's still additional outstanding questions, although we solved the reauthorization and sort of the to provide certainty there.

There's that CARB is going through a rule making, and so we think that there's probably various entities that are still waiting to to see how, how this, sort of plays out. But that's to underscore that it is a very, difficult market to to project.

I would argue we have a methodology at Finance that looks back historically on auction proceeds and then uses that to predict the future. But it's not a perfect science. I don't think that anyone would have has a, has a perfect science for how to project the the auction.

I certainly would not anticipate you saying we expected this dollar amount. But with the reauthorization, with greater certainty, and as the three parties were trying to negotiate how that GGRF money would be spent, it appears that it was about 7.5 billion is what would have been anticipated.

I think that's that would be very optimistic from our standpoint. Historically, we've seen GGRF around 4 to 5 billion. So I think 7.5 billion would be sort of an all time high for the program.

Okay. So there was a particular amount that was anticipated and then we went through the numbers trying to figure out tier one, tier two, tier three. But tier one, I want to talk specifically on tier one, and I'll come back to that anticipated amount from the auction at a later time.

But on tier one, on state operations, it it includes a wide range of departments far beyond the cost of CARB implementing GGRF. Would you please provide some examples of what is funded at like CAL FIRE and Conservation Corps with this money? A little more specificity, as was noted earlier.

So I think so a few things are in tier one. So I think there's the manufacturing tax credit backfill for state operations for...

Yeah. Just state operations. The manufacturing tax exemption, the 159, I may have some questions or maybe my colleagues will, but I'm talking specifically about state ops.

Yeah. So that's previous budget change proposals that the legislature has approved for various departments. I don't believe that CAL FIRE or the Conservation Corps, I think, may be referring to this the state responsibility area feedback fill.

I think there's some small amounts for CAL FIRE and the Conservation Corps, but these are largely BCPs that have been approved over the years by the legislature that support various staff.

Yeah. So Julianne Rolf for Department of Finance. The non SRA fee backfill GGRF funding for CAL FIRE is related to various chapter legislation. As in one example is...

Various what?

Chaptered legislation. So one of one most recent one is SB I think 1101, which provided two positions and I think 700,000 roughly dollars. And so most of it's chapter legislation. If you'd like that list of the specific bills that are coming for CAL FIRE, we can provide that for you.

CAL FIRE receives 10 million from that. Is that correct?

Yes. Yeah. So roughly it's about, it's hovered between 7 and 9 and it's I think it's going up to 10 million.

Okay. Which is more than the two positions?

Yes. Yes. So SB 1101 is just one of the bills, but we can provide you with a list and the number of positions as well. I believe it's 27, starting in budget year for that pot of funding.

And what about the California Conservation Corps?

That, we will have to get back to you on.

And is there ever any ongoing reviews of these cost and whether GGRF is the appropriate fund source for these?

So when we propose budget change proposals and the legislature approves them from that fund source, that's when that discussion happens, whether it's an appropriate fund source to be using for it. Generally, these are climate change related bills or efforts that support staff for the state. So that's part of the reasoning. So currently, SB 840 sort of reduces tier three for the state operations that's appropriated in the budget.

So we would like to clarify that it's coming out of tier one. One, because we hope that the legislature also shares a commitment to not lay off state staff. If there is ever a situation where GGRF funding didn't materialize, we wouldn't be able to fund state staff to implement core priorities of the of the state.

Well, from the general budget. So we're talking specifically about GGRF and talking about whether it is appropriate to use GGRF money for those expenses.

And these are decisions that we've made. We've that...

We? Who, we?