CALIFORNIA:

Air board cuts own power as part of deal with oil industry

One of California's most powerful environmental agencies has agreed to undermine its own authority in a political deal cut with the oil industry.

The California Air Resources Board helped insert language into Assembly and Senate bills that would bar the agency from enforcing one of its rules.

If the legislation passes, CARB for a decade will be unable to implement its Clean Fuels Outlet, a measure aimed at providing fill-up stations for green vehicles. In exchange, oil companies are supporting provisions that advance cleaner cars and trucks and provide state funding for hydrogen vehicle refueling locations.

Backers of the arrangement say it helps the state. Many green groups support it, even while lamenting that CARB squashed its own rule.

"It's rare that the regulated, the regulators and the environmental and public health community can all agree on something," state Sen. Fran Pavley (D), sponsor of the Senate bill, said in an email. "That's why I believe this bill will attract broad bipartisan support."

But others warned the deal sets a precedent that imperils a suite of state climate and clean energy policies.

In 2010, the oil industry funded an attempt to kill the state's climate law, A.B. 32. The bid failed, but petroleum interests now are trying to weaken that mandate and other green rules, said Kathryn Phillips, executive director of Sierra Club California.

"I see them going after individual regulations bit by bit," Phillips said, adding that it's "like being nibbled to death by ducks."

"This will not be the first or last time the oil industry will go to the Legislature," she added.

The language blocking CARB's authority came at the behest of oil trade group Western States Petroleum Association, according to those familiar with the legislative negotiations. WSPA member companies include BP PLC, ConocoPhillips Co., Exxon Mobil Corp. and Royal Dutch Shell PLC.

WSPA wouldn't agree to an interview about the pact. In a statement from its president, Catherine Reheis-Boyd, the trade group said it supported the legislation, S.B. 11 and A.B. 8.

The bills "assist in the development of hydrogen fueling infrastructure, in lieu of regulatory action," Reheis-Boyd said. "This approach to the development of the state's hydrogen fueling infrastructure will provide the necessary signal to the hydrogen vehicle and fuel market that California is committed to the development of this technology."

The deal comes as the oil industry challenges other California environmental rules. An appeals court decision is pending in a case where American Fuel & Petrochemical Manufacturers charged that the state's low-carbon fuel standard discriminates against out-of-state fuels. That regulation seeks to increase the market share of gasoline and diesel alternatives.

The California Chamber of Commerce, meanwhile, has filed a lawsuit contesting the state's authority to auction off emission permits as part of its carbon cap-and-trade system. Chevron and Shell executives have seats on the CalChamber's board of directors.

Heading off legal challenge?

The Clean Fuels Outlet has existed for two decades but has mostly idled. CARB in January 2012 amended it to push for expansion of hydrogen vehicle stations. Oil refiners and importers would have to help fund hydrogen fueling stations once any region had at least 10,000 related cars.

CARB missed the deadline to file that update with the state's Office of Administrative Law, which makes regulations final. But the air board has resuscitated the measure, and it could go back into effect if the legislation fails.

Oil companies dislike the regulation, and many believed the industry would sue to overturn it.

"A legal challenge was pretty imminent," said Nidia Bautista, policy director at the Coalition for Clean Air, a statewide nonprofit advocacy group. "Certainly any legal challenge in regards to that would have potentially delayed implementation" of the Clean Fuels Outlet.

Environmental groups did not want the Clean Fuels Outlet stalled.

"It's important to have fueling stations available in the next few years," said Simon Mui, director of California vehicles and fuels at the Natural Resources Defense Council. Businesses building those cars need the assurance the market will grow, he said.

"This was [CARB's] attempt to get some certainty out of what was obviously a politically and legally charged attack by the oil industry," Mui said.

Oil companies "might well have sued," CARB spokesman Dave Clegern said. But, he added, the board agreed to the bill language "because we want to move forward as expeditiously as possible" on the hydrogen stations.

The state's desire to shrink climate pollution to 1990 levels by 2020 requires a swift transition to low-carbon fuels, he said.

The legislation provides $20 million annually in funding for hydrogen stations through 2016 and up to $20 million in subsequent years until there are at least 100 publicly available stations.

"What we're trying to accomplish is to make sure we can reach the goals of A.B. 32," Clegern said. "The greenhouse gas emission reductions are what we are after, and we believe this will give it to us and the state of California, and that's our only priority on this particular case."

Pavley, the Senate bill's sponsor, said in an email there was consensus "that the Clean Fuels Outlet regulatory approach is not the best fit for the policy objective we're trying to achieve -- commercializing zero emission vehicles to meet near and long term air pollution requirements."

But others said if the regulation didn't work, it should have been fixed outside the Legislature.

"The Legislature does legislation to set policy. CARB implements policy through their regulations. There's a bit of a dividing line there," said Adrienne Alvord, California and Western states director at the Union of Concerned Scientists. This move "invites micromanaging of the regulatory process through the Legislature. We think that's a bad precedent."

Deal first struck last year

The agreement between CARB and WSPA originated in legislation that failed last year, S.B. 1455 from then-Sen. Christine Kehoe (D).

The bill originally aimed to increase the portion of alternative fuels used in the state. But it became obvious that bill would die on the Senate floor, said John Boesel, president and CEO of Calstart, a nonprofit that seeks to expand the green transportation industry. It was a sponsor of Kehoe's legislation.

Kehoe asked for a meeting, Boesel said, with the major players in the debate: Calstart, the California Natural Gas Vehicle Coalition, CARB and WSPA. The goal was to see what could be salvaged.

In those talks, Calstart said it wanted to see extended the Carl Moyer and A.B. 118 clean vehicle incentive programs, which are due to expire in 2015-16. Those measures issue grants for truck engine retrofits, electric vehicle charging stations and other technologies that reduce air pollution. The awards are funded by fees the state levies on vehicle registrations and tire purchases.

"The oil industry said we're open to discussing that, but we don't really like this one regulation here that would mandate that we build and operate these hydrogen stations," Boesel said.

WSPA asked for relief from the regulation in exchange for supporting a measure that extended the incentive programs. The legislation also included state funding for hydrogen stations.

Calstart, Boesel said, "didn't necessarily want to see Clean Fuels Outlet substituted" but believed there was a "net-net" positive outcome if the bill passed and there was "greater certainty hydrogen stations will get built."

"The oil industry has been battling CARB for decades, and they have often sought to go through the Legislature to achieve their objectives," Boesel said. "This is a rare instance where CARB was willing to negotiate a deal that they felt would work for them and was also acceptable to the oil industry."

Because S.B. 1455 would have assessed fees on residents, under state law it needed a two-thirds majority in both chambers. It passed the Assembly but failed in the Senate by two votes.

Pavley, along with fellow S.B. 11 sponsor Sen. Michael Rubio (D) and A.B. 8 sponsors Henry Perea (D) and Nancy Skinner (D), picked up the bulk of S.B. 1455 as their current measures. The current bills also need two-thirds majority for passage.

Precedent-setting?

Those for and against the measure disagreed about whether it's risky. Clegern with CARB said the bill doesn't signal the air board's deference to legislators.

"There is no precedent that they're not doing it without our input," he said of lawmakers. "We are not ceding any regulatory authority. This is simply a practical collaborative effort with stakeholders and legislators."

Bautista with the Coalition for Clean Air said the oil industry has pressed the Legislature hard before and would do so in the future, regardless of whether it had achieved this deal.

"They'll keep trying whatever they can try on all kinds of fronts," Bautista said. "I don't think this effort in particular supports or stops" it.

But two environmental groups saw the bargain as problematic.

"We just don't agree that it's the Legislature's role to change a legally standing regulation," said Alvord with the Union of Concerned Scientists. The Clean Fuels Outlet, she said, was a "legally vetted, scoped, passed regulation by CARB. The legislation basically tells CARB it can't enforce its own regulation."

Union of Concerned Scientists hasn't taken a position on the bills because it supports extension of the incentive programs.

Phillips with Sierra Club California said it could hurt public confidence in the rulemaking process.

"It suggests to the general public that the amount of time they put into something is sort of easily and willfully going to be gutted by CARB if the right deal comes along with a regulated entity," she said.

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