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AB-1156 Methane: dairy and livestock: pilot financial mechanism: Environmental Credit Insurance Program.(2019-2020)

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Date Published: 04/30/2019 09:00 PM
AB1156:v97#DOCUMENT

Amended  IN  Assembly  April 30, 2019
Amended  IN  Assembly  April 10, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill
No. 1156


Introduced by Assembly Member Eduardo Garcia

February 21, 2019


An act to amend Section 39730.7 of, and to add Section 39730.7.5 to, the Health and Safety Code, relating to greenhouse gases.


LEGISLATIVE COUNSEL'S DIGEST


AB 1156, as amended, Eduardo Garcia. Methane: dairy and livestock: pilot financial mechanism: Environmental Credit Insurance Program.
Existing law requires the State Air Resources Board to approve and begin implementing a comprehensive strategy to reduce emissions of short-lived climate pollutants in the state to achieve a reduction in methane by 40%, hydrofluorocarbon gases by 40%, and anthropogenic black carbon by 50% below 2013 levels by 2030, as specified. Existing law requires the state board, in consultation with the Department of Food and Agriculture, to adopt regulations to reduce methane emissions from livestock manure management operations and dairy manure management operations consistent with the strategy, as specified.
The California Global Warming Solutions Act of 2006 establishes the state board as the state agency responsible for monitoring and regulating sources emitting greenhouse gases. The act requires the state board to approve a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020 and to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. Pursuant to the act, the state board has adopted the Low-Carbon Fuel Standard regulations.
Existing law requires the state board to develop a pilot financial mechanism to reduce the economic uncertainty associated with the value of environmental credits, including specified credits from dairy-related projects producing low-carbon transportation fuels. Existing law requires the state board to make recommendations to the Legislature for expanding this mechanism to other sources of biogas.
This bill instead would require the Treasurer, in consultation with the state board, to develop and implement no later than January 1, 2021, a pilot financial mechanism to reduce the economic uncertainty associated with the value of environmental credits, as specified. The bill would no longer require the state board to make recommendations to the Legislature for expanding this program to other sources of biogas and instead would authorize the Treasurer, in consultation with the state board, to expand this mechanism to other sources of biogas. very low carbon transportation fuel.
This bill would establish the Environmental Credit Insurance Program, to be administered by the Treasurer in consultation with the state board, to increase the price certainty of the Low-Carbon Fuel Standard regulations credit market, as defined, for low- or negative-carbon very low carbon transportation fuel or negative-carbon transportation fuel development projects, as defined, by providing payments to project applicants, as defined, for the difference between the strike price, as defined, and environmental credit price, as defined, if the environmental credit price drops below the contracted strike price. The bill would create the Environmental Credit Insurance Fund in the State Treasury with moneys in the fund to be allocated, upon appropriation by the Legislature, by the Treasurer for the purposes of the Environmental Credit Insurance Program.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) Short-lived climate pollutants, such as black carbon, fluorinated gases, and methane, are powerful climate forcers that have a dramatic and detrimental effect on air quality, public health, and climate change.
(b) These pollutants create a warming influence on the climate that is many times more potent than that of carbon dioxide.
(c) Short-lived climate pollutants that are toxic air contaminants also are a significant environmental risk factor for premature death.
(d) Reducing emissions of these pollutants can have an immediate beneficial impact on climate change and on public health.
(e) To the extent possible, efforts to reduce emissions of short-lived climate pollutants should focus on areas of the state that are disproportionately affected by poor air quality.
(f) To achieve these goals, the state should take responsible measures to help with project financing.

SEC. 2.

 Section 39730.7 of the Health and Safety Code is amended to read:

39730.7.
 (a) For purposes of this section, the following terms have the following meanings:
(1) “Department” means the Department of Food and Agriculture.
(2) “Commission” means the Public Utilities Commission.
(3) “Energy commission” means the State Energy Resources Conservation and Development Commission.
(4) “Strategy” means the strategy to reduce short-lived climate pollutants developed pursuant to Section 39730.
(b) (1) The state board, in consultation with the department, shall adopt regulations to reduce methane emissions from livestock manure management operations and dairy manure management operations, consistent with this section and the strategy, by up to 40 percent below the dairy sector’s and livestock sector’s 2013 levels by 2030.
(2) Prior to adopting regulations pursuant to paragraph (1), the state board shall do all of the following:
(A) Work with stakeholders to identify and address technical, market, regulatory, and other challenges and barriers to the development of dairy methane emissions reduction projects. The group of stakeholders shall include a broad range of stakeholders involved in the development of dairy methane reduction projects, including, but not limited to, project developers, dairy and livestock industry representatives, state and local permitting agencies, energy agency representatives, compost producers with experience composting dairy manure, environmental and conservation stakeholders, public health experts, and others with demonstrated expertise relevant to the success of dairy methane emissions reduction efforts.
(B) Provide a forum for public engagement by holding at least three public meetings in geographically diverse locations throughout the state where dairy operations and livestock operations are present.
(C) In consultation with the department, do both of the following:
(i) Conduct or consider livestock and dairy operation research on dairy methane emissions reduction projects, including, but not limited to, scrape manure management systems, solids separation systems, and enteric fermentation.
(ii) Consider developing and adopting methane emissions reduction protocols.
(3) The state board shall make available to the public by posting on its internet website a report on the progress made in implementing paragraph (2). Pursuant to Section 9795 of the Government Code, the state board shall notify the Legislature of the report.
(4) Notwithstanding the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), the regulations adopted pursuant to paragraph (1) shall be implemented on or after January 1, 2024, if the state board, in consultation with the department, determines all of the following:
(A) The regulations are technologically feasible.
(B) The regulations are economically feasible considering milk and live cattle prices and the commitment of state, federal, and private funding, among other things, and that markets exist for the products generated by dairy manure management and livestock manure management methane emissions reduction projects, including composting, biomethane, and other products. The analysis shall include consideration of both of the following:
(i) Electrical interconnection of onsite electrical generation facilities using biomethane.
(ii) Access to common carrier pipelines available for the injection of digester biomethane.
(C) The regulations are cost effective.
(D) The regulations include provisions to minimize and mitigate potential leakage to other states or countries, as appropriate.
(E) The regulations include an evaluation of the achievements made by incentive-based programs.
(c) No later than July 1, 2020, the state board, in consultation with the department, shall analyze the progress the dairy and livestock sectors have made in achieving the goals identified in the strategy and specified in paragraph (1) of subdivision (b). The analysis shall determine if sufficient progress has been made to overcome technical and market barriers, as identified in the strategy. If the analysis determines that progress has not been made in meeting the targets due to insufficient funding or technical or market barriers, the state board, in consultation with the department and upon consultation with stakeholders, may reduce the goal in the strategy for the dairy and livestock sectors, as identified pursuant to paragraph (1) of subdivision (b).
(d) (1) (A) No later than January 1, 2018, the state board, in consultation with the commission and the energy commission, shall establish energy infrastructure development and procurement policies needed to encourage dairy biomethane projects to meet the goal identified pursuant to paragraph (1) of subdivision (b).
(B) The Treasurer, in consultation with the state board, shall develop and implement no later than January 1, 2021, a pilot financial mechanism to reduce the economic uncertainty associated with the value of environmental credits, including credits pursuant to the Low-Carbon Fuel Standard regulations (Subarticle 7 (commencing with Section 95480) of Title 17 of the California Code of Regulations) from dairy-related projects producing low-carbon very low carbon transportation fuels as established pursuant to Section 39730.7.5. The Treasurer, in consultation with the state board, may expand this mechanism to other sources of biogas. very low carbon transportation fuels.
(2) No later than January 1, 2018, the commission, in consultation with the state board and the department, shall direct gas corporations to implement not less than five dairy biomethane pilot projects to demonstrate interconnection to the common carrier pipeline system. For the purposes of these pilot projects, gas corporations may recover in rates the reasonable cost of pipeline infrastructure developed pursuant to the pilot projects.
(e) No later than January 1, 2018, the state board shall provide guidance on credits generated pursuant to the Low-Carbon Fuel Standard regulations (Subarticle 7 (commencing with Section 95480) of Title 17 of the California Code of Regulations) and the market-based compliance mechanism developed pursuant to Part 5 (commencing with Section 38570) of Division 25.5 from the methane reduction protocols described in the strategy and shall ensure that projects developed before the implementation of the regulations adopted pursuant to subdivision (b) receive credit for at least 10 years. Projects shall be eligible for an extension of credits after the first 10 years to the extent allowed by regulations adopted pursuant to the California Global Warming Solutions Act of 2006 (Division 25.5 (commencing with Section 38500)).
(f) Enteric emissions reductions shall be achieved only through incentive-based mechanisms until the state board, in consultation with the department, determines that a cost-effective, considering the impact on animal productivity, and scientifically proven method of reducing enteric emissions is available and that the adoption of the enteric emissions reduction method would not damage animal health, public health, or consumer acceptance. Voluntary enteric emissions reductions may be used toward satisfying the goals of this chapter.
(g) Except as provided in this section, the state board shall not adopt methane emissions reduction regulations controlling the emissions of methane from dairy operations or livestock operations to achieve the 2020 and 2030 greenhouse gas emissions reduction goals established pursuant to the California Global Warming Solutions Act of 2006 (Division 25.5 (commencing with Section 38500)).
(h) This section does not limit the authority of the state board to acquire planning and baseline information, including requiring the monitoring and reporting of emissions.
(i) This section does not in any way affect the state board’s or districts’ authority to regulate emissions of criteria air pollutants, toxic air contaminants, or other pollutants pursuant to other provisions of this division.

SEC. 3.

 Section 39730.7.5 is added to the Health and Safety Code, to read:

39730.7.5.
 (a) For purposes of this section, the following apply:
(1) “Contract” means a contract established via reverse auction for a strike price valuation of environmental credits.
(2) “Environmental credit” means the asset generated by low-carbon very low carbon transportation fuel producers with a monetizable value under the Low-Carbon Fuel Standard regulations (Subarticle 7 (commencing with Section 95480) of Title 17 of the California Code of Regulations).
(3) “Insurance coverage” means the payout of money to a project applicant in the event an environmental credit value drops below a strike price.
(4) “Insured projects” are projects that have been approved for inclusion in the program by the Treasurer.

(5)“Low- and negative-carbon fuel development project” means a project in the state that will develop a transportation fuel eligible for a credit pursuant to the Low-Carbon Fuel Standard regulations (Subarticle 7 (commencing with Section 95480) of Title 17 of the California Code of Regulations).

(6)

(5) “Low-Carbon Fuel Standard credit market” means the credit market established pursuant to the Low-Carbon Fuel Standard regulations (Subarticle 7 (commencing with Section 95480) of Title 17 of the California Code of Regulations).

(7)

(6) “Program” means the Environmental Credit Insurance Program established pursuant to this section and authorized pursuant to subparagraph (B) of paragraph (1) of subdivision (d) of Section 39730.7.

(8)

(7) “Project applicant” means a person or entity who owns the low- and very low carbon transportation fuel or negative-carbon transportation fuel development project.

(9)

(8) “Reverse auction” is an auction in which project developers bid for a desired strike price. The lowest bid receives the contract, and other contracts are awarded in ascending price order until the program moneys are allocated.

(10)

(9) “Strike price” means a price established between the Treasurer and a counterparty representing an agreed-upon combined value of the environmental credits.
(10) “Very low carbon transportation fuel or negative-carbon transportation fuel development project” means a project in the state that will develop a very low carbon transportation fuel eligible for a credit pursuant to the Low-Carbon Fuel Standard regulations (Subarticle 7 (commencing with Section 95480) of Title 17 of the California Code of Regulations).
(11) “Very low carbon transportation fuel” has the same meaning as in Section 43870.
(b) Consistent with subparagraph (B) of paragraph (1) of subdivision (d) of Section 39730.7, the Environmental Credit Insurance Program is hereby established to be administered by the Treasurer in consultation with the state board. The program shall increase the price certainty of the Low-Carbon Fuel Standard credit market for low- very low carbon transportation fuel or negative-carbon transportation fuel development projects by providing payments to project applicants for the difference between the strike price and environmental credit price if the environmental credit price drops below the contracted strike price.
(c) The goals of the program shall include, but need not be limited to, all of the following:
(1) Increase the price certainty for the Low-Carbon Fuel Standard credit market.
(2) Reduce the risk to low- and very low carbon transportation fuel or negative-carbon transportation fuel projects financed based on environmental credit value.
(3) Accelerate the development of projects that capture methane pursuant to the goals established in Section 39730.5.
(d) The program shall do all of the following:
(1) Provide private, supplemental insurance coverage to cover the costs of the program if the price of environmental credits goes below a certain percentage of the strike price.
(A) This supplemental insurance may be underwritten by the Treasurer or be a requirement for project applicants to include the cost of insurance in the reverse auction price.
(B) In implementing this section, the Treasurer shall optimize the balance between private insurance and government responsibility to reduce the risk exposure for state funding and reduce the cost of insurance coverage.
(C) If supplemental insurance is provided by the Treasurer, the Treasurer may charge a fee to insured projects to cover the reasonable costs of the program in providing supplemental insurance.
(2) Provide a process for establishing the strike price via a reverse auction utilizing an open bid process until program funding is fully subscribed. All moneys received pursuant to this paragraph shall be deposited in the Environmental Credit Insurance Fund.
(3) Ensure that different very low carbon transportation fuels are considered under separate strike prices and that at least two types of very low carbon transportation fuels are selected.
(4) Consider the credit worthiness creditworthiness of the project applicant and the readiness of the low- and very low carbon transportation fuel or negative-carbon transportation fuel development project.
(5) Ensure that the term for the insurance coverage is no less than 10 years.
(6) Allow for the Treasurer to deposit environmental credit revenue in the Environmental Credit Insurance Fund if environmental credit prices are above the strike price.
(7) Allow for the Treasurer to charge a fee to project applicants that hold contracts for the reasonable costs of administering the program. All moneys received pursuant to this paragraph shall be deposited in the Environmental Credit Insurance Fund.
(8) Ensure that sufficient moneys are held in escrow to manage liability and protect the state from an unexpected shortfall.
(e) The Environmental Credit Insurance Fund is hereby created in the State Treasury. Moneys in the fund shall be allocated, upon appropriation by the Legislature, by the Treasurer for the purposes of the program.