CONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OF MANDATED FEDERAL NONATTAINMENT PENALTIES THROUGH MOTOR VEHICLE FEES October 21, 2010 1
Federal Mandates for Nonattainment Penalties • Section 185 of the federal Clean Air Act • Imposes penalty fees in areas failing to reach attainment • Applies to Major Stationary Sources of either NOx or VOC • Was intended as a hammer to force more reductions from stationary source businesses • Fee is based on annual emissions in excess of 80% of a ‘baseline amount’ • $8,755/ton fee adjusted annually using CPI 2
Section 185 Triggered in the San Joaquin Valley • More than one exceedance at any location triggers the penalty • Seven exceedances of the 1-hr ozone standard experienced in 2010 • Exceedances coincide with back-to-school traffic and high temperatures • $29 million/year penalty imposed on Valley businesses • Payments due in 2012 based on 2011 actual emissions • EPA will impose and confiscate penalties if the District fails to adopt an approvable program 3
Penalties by Business Category Section 185 Nonattainment Business Category Penalties Agriculture $5,511,014 Commercial $1,385,399 Electric Generation $4,123,852 Industrial $9,110,370 Industrial - Oil and Gas $6,786,434 Industrial - Oil and Gas Area-wide $1,674,600 TOTAL $28,591,668 4
District Attempts to Satisfy Section 185 • Adopted Rule 3170 on May 16, 2002 • January 2010 – EPA action on Rule 3170 to partially approve and partially disapprove • Sections disapproved by the EPA: – Clean Unit exemption – Multi-year emissions averaging • These provisions were meant to reward well-controlled sources 5
Consequences of EPA Action • Sanctions clock started – Must receive EPA approval of revised program within 18 months (August 2011) • Sanctions – De-facto ban on new businesses locating or expanding in the Valley (2:1 offsets) – Loss of highway funds ($250 million/year) – EPA will collect and confiscate nonattainment fees and revenues 6
Inequities in Section 185 • Considering their enormous expenditure and sacrifice, Valley businesses deserve our recognition and reward, NOT A PENALTY • Valley businesses have reduced NOx and VOC emissions by 80% since 1980 – 500+ regulations adopted – Billions of dollars in clean-air technology investments • Exceedances reduced from 56 days in 1996, to only 7 days in 2010 • Today, 80% of NOx emissions are from mobile sources, outside the District’s regulatory jurisdiction • Ozone violations largely due to mobile sources 7
Distribution of Responsibility Stationary Source NOx Emissions Reduced by 75% since 1980 120% 100% 80% 60% 40% 20% 0% 1980 1985 1990 1995 2000 2005 2010 8
Distribution of Responsibility (cont’d) Stationary Source VOC Emissions Reduced by 88% Since 1980 120% 100% 80% 60% 40% 20% 0% 1980 1985 1990 1995 2000 2005 2010 9
Distribution of Responsibility (cont’d) On-road Mobile and Stationary Source Emissions 120 100 80 Percent 60 On-road Mobile Sources 40 Stationary Sources 20 0 1980 2010 10
Distribution of Responsibility (cont’d) 250% Vehicle Miles Have Grown Twice as Much as Population 200% 150% % grow th from 1980 VMT % grow th from 1980 Pop. 100% 50% 0% 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 11
Distribution of Responsibility (cont’d) NOx Emissions by Category Stationary Stationary Area On-Road Mobile Off-Road Mobile On-Road Mobile 12
Distribution of Responsibility (cont’d) On-road Mobile NOx Emissions (2010) Light and medium duty vehicles 16% Heavy duty vehicles 84% 13
Distribution of Responsibility (cont’d) On-road Mobile VOC Emissions (2010) Heavy duty vehicles 34% Light and medium duty vehicles 66% 14
Distribution of Responsibility (cont’d) Directly Emitted PM10 On-road mobile and travel-related road dust 22% Other direct PM10 emissions 66% 15
Alternatives Available to Satisfy Section 185 Penalty Mandate • In response to calls for flexibility, EPA issued national guidance in Jan/2010 • Allows for use of new fees in lieu of penalties on businesses if spent to reduce emissions • AB 2522 (Arambula) provides an opportunity for a more equitable solution to Section 185 penalty mandate 16
Motor Vehicle Fees Under AB 2522 • Authorizes $24 per vehicle • Requires majority vote of the Governing Board and a majority vote of the elected members of the Board • Authorization resolution and program for expending funds • CARB must find that the District has undertaken all feasible measures to reduce emissions – DMV collection begins 9 months after finding – Collection anticipated in October 2011, at the earliest • Fees can be collected until 2023-24 17
Valley Needs Additional Incentive Funding • Valley cannot reach attainment with regulations alone • District has no regulatory authority over mobile sources (80% of emissions) • Additional rules on stationary sources are becoming cost-prohibitive and are reaching the point of diminishing return • Past experience with incentive programs have led to cost-effective reductions in emissions • $200 million/year needed for meaningful incentive program to reach attainment • Board supported enactment of AB 2522 in 2008 18
Benefit of Incentives on Attainment with Federal 8-Hour Ozone Standard With Without Incentives Incentives Population in 2 million 1.4 million Attainment in 2015 Population in 3.6 million 2.6 million Attainment in 2020 19
Magnitude and Timing of Incentive Revenues - Factors to be Considered • Incentive-based programs expedite reductions and improve public health while offering financial assistance to the regulated community • Cost of reductions is increasing with time – “lower hanging fruit” reductions already consumed – Funding eligibility reduced in the future due to existing and future state and local regulations • Funds generated locally can be offered as a match for additional state and federal funding • General public participation (fair share responsibility) • Public’s acceptability and ability to absorb fee given the current economic distress 20
New Revenues Will be Reinvested in the San Joaquin Valley • Revenues will be used to fund emission reduction projects throughout the Valley • District has 20 years experience implementing incentive programs • Incentive program praised through numerous recent audits as operating with high accountability and efficiency 21 21
New Revenues Will be Reinvested in the San Joaquin Valley (cont’d) Spending Program Annual Funding Program Description Need A Truck Replacement $150 million B School Bus Replacement $100 million C Mass Transit $40 million D Van Pools $0.5 million E Public Transit Incentive $0.5 million F Park & Ride Lots $1.5 million G Traffic Signal Synchronization $12 million H Clean Alternative Fuel Infrastructure $8 million 22 22
New Revenues Will be Reinvested in the San Joaquin Valley (cont’d) Spending Program Electronic mobility systems (i.e. online I services) $3 million J Bicycle Infrastructure $0.5 million City/county assistance to devise and implement Sustainable Community K Strategies to reduce Vehicle Miles Traveled $15 million L Gross Polluting Vehicles $6 million M Inland Ports (Truck-to-Rail) $12.5 million N Short Sea Shipping (Truck-to-Ship) $2.5 million O Construction Equipment Replacement $4 million 23 23
New Revenues Will be Reinvested in the San Joaquin Valley (cont’d) Spending Program Ag Off-Road Equipment P Replacement $30 million Q Ag Irrigation Pump $5 million R Forklifts $1 million S Portable Off-Road Engines $5 million T Locomotives $10 million U Clean Lawn Equipment $1 million V Fireplace Change Out $0.5 million W Residential Furnace $0.5 million X School Boilers $1 million 24 24
New Revenues Will be Reinvested in the San Joaquin Valley (cont’d) • Annual spending allocations will be established through public budgeting process • Governing Board approval through budget appropriations • Designation for expenditure in Environmental Justice communities 25 25
Reducing Air Quality Impacts in Environmental Justice Areas • California H&SC requires that: – $10 million be expended to benefit EJ areas – EJ advisory committee to provide recommendations to District on how and where to expend funds • EJAG established in 2007 – could be used to provide input • District has excellent track record of distributing funds in EJ areas 26
Option 1 – Take No Further Action • Considered, but NOT recommended for the following reasons: – EPA will collect penalties plus interest from Valley businesses – All penalties collected will go to the Federal Treasury (no return to the Valley) – Expensive federal sanctions will be imposed: • De-facto ban on new and expanding businesses (2:1 offset ratio) • $250 million per year loss of highway funds 27
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