CalSTEP_Action_Plan
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The document presents a plan from the California Secure Transportation Energy Partnership (CalSTEP) to reduce California's dependence on petroleum and increase the use of alternative transportation fuels. The plan aims to reduce petroleum use for on-road transportation 15% below 2003 levels and increase the proportion of alternative fuels to 20% by 2020. It proposes three primary actions and seven supporting actions across diversifying fuels, improving efficiency, and reducing driving needs. The actions together could reduce petroleum use by 7.6 billion gallons and greenhouse gas emissions by 62 million tons annually, while strengthening the economy and environment.
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16
California Can Secure Its
Transportation Energy Future
Increasing competition for global oil, a strained
economy and increasing trade deficit, limited refin-
ing capacity, and growing dependence on imported
oil that strengthens undesirable regimes around the
world all lead to an urgent need for action to secure
California’s transportation energy future.
Transportation energy security is a goal and
responsibility that is typically thought of as one that
should be pursued by the federal government. How-
ever, with these associated problems, and a national
dependence on foreign oil that has climbed from 40
to 60 percent since President Richard Nixon’s 1973
Project Independence was announced,8 this goal and
responsibility is falling on other shoulders. In the
absence of federal leadership, California has stepped
up to define the parameters of such a goal; and it
has forty years of precedent to indicate that not only
will pursuing this goal be successful, but also that it
can lead the rest of the nation to follow its path.
TheCECandGovernorSchwarzeneggerhavealready
established the urgent need and feasible targets for
petroleum reduction to protect the state from energy
supply and price risks. Yet there are other reasons for
and benefits to reducing petroleum consumption. By
significantly increasing its transportation energy effi-
ciency and diversifying its transportation fuel sources,
California would support or fully achieve its adopted
transportation energy security and AB 32 GHG goals,
follow precedent established by its successful station-
ary energy programs, create a “California advantage”
to buffer the state against the negative consequences
associated with an excessive reliance on oil, and help
grow the economy through new technologies and
fuels in which the state can be a worldwide leader.
The Current Transportation Energy
Outlook: A Need for Action
Increased Chinese Demand Helps
Drive Up Worldwide Oil Prices
Source: UBS, reprinted in The Economist
Theworldisconsumingever-greaterquantitiesofoil.
Thanks to the United States’ high and increasing con-
sumption as well as a steady and significant increase in
demand from emerging economies such as China and
India, overall demand for transportation energy over the
next twenty years is expected to increase by more than
50 percent.9 California is a part of this problem: In 2004
California drivers paid $35 billion to travel 330 billion
miles and consumed 18.1 billion gallons of fuel.10 Over
the long term, this increase in demand from California
and elsewhere, will inflate the price of oil, which will
weaken California’s economy.
This problem could be significantly compounded
if geologists’ global “peak oil” predictions come true.
A recent report supported by the U.S. Department of
Energy states that peak oil production, which is the sin-
gular event indicating the halfway point of the entire
planet’s oil production, could come within five years, and
almost certainly will come by 2020; after that, produc-
tion will inexorably decline.11 This report warns that the
world should be spending $1 trillion each year to develop
alternative energy sources and avoid peak oil’s associated
8 Energy Information Administration
9 Annual Energy Outlook 2005. Energy Information Administration. DOE/EIA-0383(2005) February 2005.
10 Navai, Reza. State’s Perspective on Land Use, Transportation, Energy/Greenhouse Gas Emissions Connection. Presentation delivered to the CEC IEPR
Workshop, September 22, 2006. [Online] http://energy.ca.gov/2007_energypolicy/documents/2006-09-22_workshop/presentations/Nevai.pdf
11 Hirsch, Robert L., et al. Peaking of World Oil Production: Impacts, Mitigation, and Risk Management. February 2005. And Hirsch, Robert L., et al. Eco-
nomic Impacts of Liquid Fuel Mitigation Options. National Energy Technology Laboratory. Department of Energy. May 2006.](https://image.slidesharecdn.com/bfd70e9f-afdf-428c-aac3-940b83197318-151003215524-lva1-app6892/85/CalSTEP_Action_Plan-22-320.jpg)
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crippling economic effects and resulting chaos.12 Some
speculate that the production of light, sweet crude oil,
the type most favored by oil refiners, may have already
peaked and now must be replaced by more expensive
and harder-to-extract sources. The results of this prog-
nosis include uncertain and tight levels of worldwide
petroleum supplies and further price volatility.
Excessive consumption, peak oil, and high and
volatile prices are prompting an international race to
discover and develop new oil fields. California already
imports over 40 percent of its oil,13 which sends a
significant portion of its money overseas, expands
the state’s trade deficit, weakens its economy, and
often helps support regimes such as those in Saudi
Arabia, Venezuela, Russia, and Iran14 that are either
politically unstable, hostile to the United States,
undemocratic, or a combination of the above.
Furthermore, nations that aren’t bound by human
rights considerations, such as China, are dealing
with and investing in unstable and undemocratic
countries, such as Sudan. Because of the globalized
nature of the oil industry, such a trend to utilize oil
from unstable and undemocratic countries magni-
fies the United States’ and California’s vulnerability,
geopolitical positioning issues, and support of ques-
tionable regimes. In fact, an independent task force
established by the U.S. Council on Foreign Relations
recently came to the stark conclusion that “the lack
of sustained attention to energy issues is undercut-
ting U.S. foreign policy and national security.”15
Another result of this race to discover and
develop new oil fields is the rapid development of
nontraditional hydrocarbons, such as oil shale and
sands. At first glance this may appear to be a posi-
tive result, given that the United States has the
world’s largest reserves of oil shale and Canada has
close to the world’s largest reserves of oil sands.16
Transportation energy from these sources therefore
reduces the flow of money to geopolitically unde-
sirable and unstable parts of the world. However,
there are real problems with obtaining energy from
these nontraditional hydrocarbons. Because these
fuels come in the form of semisolid mixtures of bitu-
men, clay, sand, and water, or in the form of rocks
rich in organic material, tremendous amounts of
energy and resources are required to process them
and yield petroleum. It takes about 1,200 cubic feet
of natural gas and two to four barrels of water to
produce one barrel of synthetic oil from two tons
of oil sand.17 Furthermore, the extraction of these
fuels through surface mining can leave permanent
scars on landscapes and vegetation.
Oil shale and sands production is also a sig-
nificant source of GHG emissions. A recent report
from Canada's Office of the Auditor General stated
that oil sand operations’ contribution to annual
12 Ibid.
13 CEC. [Online] http://www.energy.ca.gov/gasoline/gasoline_q-and-a.html
14 According to the Central Intelligence Agency’s The World Factbook, Saudi Arabia, Venezuela, Russia, and Iran together have approximately 40 percent of the
world’s proven oil reserves.
15 National Security Consequences of U.S. Oil Dependency. Council on Foreign Relations. October12, 2006; p. 9.
16 The United States has 3.3 trillion tons of oil shale deposits, and Canada has between 1.7 and 2.5 trillion barrels of oil reserves in the form of tar sands.
17 Canadian National Energy Board. Canada’s Oil Sands: Opportunities and Challenges to 2015: An Update June 2006. [Online] http://www.neb-one.gc.ca/en-
ergy/EnergyReports/EMAOilSandsOpportunitiesChallenges2015_2006/EMAOilSandsOpportunities2015QA2006_e.htm. And Government of Alberta. Depart-
ment of Energy. What is Oil Sands? [Online] http://www.energy.gov.ab.ca/100.asp
Graph 5: California’s 2002 Total CO2 Emissions
from Fossil Fuel Consumption (360 million
metric tons)
Source: California Department of Transportation
SUMMARY/BACKGROUND](https://image.slidesharecdn.com/bfd70e9f-afdf-428c-aac3-940b83197318-151003215524-lva1-app6892/85/CalSTEP_Action_Plan-23-320.jpg)
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GHG emissions could double between 2004 and
2015.18 And even without the increased produc-
tion of synthetic oil from oil shale and sands,
excessive consumption of fossil fuels is the leading
source of GHG emissions. In California, transpor-
tation fueled almost entirely by petroleum fossil
fuels is responsible for approximately 41 percent
of the state’s overall GHG emissions, as indicated
in Graph 5 (page 17).19
If current growth trends continue, gasoline use
and related CO2 emissions in the state will increase
approximately 40 percent over the next twenty
years.20 Under a business-as-usual scenario, the
global warming effects will particularly affect Cali-
fornians’ way of life. Global warming is expected to
have adverse impacts upon the state’s water sup-
plies, the Sierra snowpack, and agriculture and food
production. In addition, it is expected to cause sig-
nificant increases in pestilence
outbreaks, a projected doubling
of catastrophic wildfires, and
damage to the state’s extensive
coastline and ocean ecosys-
tems.21 If no major actions are
taken to reduce GHGs, the state
can also expect higher food,
water, energy, insurance, and
public health costs. In addition,
global warming is expected to
create significant environmental
damage to the state and could
result in the loss of many spe-
cies.22
California’s newly enacted AB
32 process calls for significantly
reduced GHG emissions from
all sectors. A secure transportation energy future
can make significant contributions to this process
by decreasing transportation’s share of GHG emis-
sions. This effort can help protect the economy: The
recently released Stern Review report, The Econom-
ics of Climate Change, commissioned by the Brit-
ish Government, estimates that while the cost of
GHG stabilization could be 1 percent of global gross
domestic product (GDP) by 2050, the dangers of
inaction could be equivalent to 20 percent of global
GDP or more.23
Excessive consumption, peak oil, high and vola-
tile fuel prices, and GHG emissions are all sources of
actual or potential economic destabilization in Cali-
fornia. Yet another contributing factor is the demand
for finished product (i.e., gasoline and diesel fuel),
the production of which requires oil refinement. Cal-
ifornia’s lack of spare refining capacity and the gap
Graph 6: California’s Refining Capacity Is Maxed Out,
Gasoline Imports Make Up for Supply Shortages
Source: California Energy Commission
18 2006 Report of the Commissioner of the Environment and Sustainable Development. Office of the Auditor General of Canada. September 28, 2006:
Chapter 3, p. 19.
19 CEC. Inventory of California Greenhouse Gas Emissions and Sinks: 1990–2004. Publication # CEC-600-2006-013. 2004.
20 Navai, Reza. State’s Perspective on Land Use, Transportation, Energy/Greenhouse Gas Emissions Connection. California Department of Transporta-
tion. Presentation delivered to the CEC IEPR Workshop, September 22, 2006. [Online] http://energy.ca.gov/2007_energypolicy/documents/2006-09-
22_workshop/presentations/Nevai.pdf
21 California Air Resources Board.
22 Ibid.
23 Stern, Sir Nicholas. The Economics of Climate Change. The Stern Review. Cabinet Office – HM Treasury. United Kingdom. October 2006.](https://image.slidesharecdn.com/bfd70e9f-afdf-428c-aac3-940b83197318-151003215524-lva1-app6892/85/CalSTEP_Action_Plan-24-320.jpg)
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between California’s refining capacity and demand
(see Graph 6), which will expand considerably over
the coming decades, adds another degree of insecu-
rity to this market. This situation is currently rem-
edied by the importation of refined products.24 How-
ever, should a California refiner or an out-of-state
supplier experience difficulties and be taken offline,
California’s economy could suffer significantly. Tank-
ers would have to ship gasoline from the half-dozen
refiners around the world that can produce the state’s
clean-burning gasoline, a process that takes seven to
ten days at a minimum.25 Graph 6 illustrates that,
under a business-as-usual scenario where no action
is taken to reduce California’s oil consumption, this
problem is poised to grow worse over time.
Under business as usual, the
oil industry would need to
devote between $8 billion
and $18.6 billion worth
of petroleum infrastructure
to meet the state’s
additional transportation
fuel demand solely from
petroleum sources.
The state’s limited refining capacity also illustrates
that the business-as-usual pathway does not imply
little or no additional costs. Under business as usual,
the oil industry would need to devote significant
petroleum infrastructure, totaling approximately
323 million barrels of refining capacity, if it wished
to meet the state’s estimated transportation fuel
demand of 23 billion gallons per year in 2020 solely
from petroleum sources. The value of this capacity,
either within California or elsewhere, could range
between $8 billion and $18.6 billion.26 Therefore,
any considerations about whether to move forward
with aggressive petroleum reduction policies should,
at a minimum, be weighed against this cost.
The State’s Stationary Energy Model:
Diversify and Consume Efficiently
When faced with energy challenges on the stationary
side, the state applied a straightforward strategy: Diver-
sify and consume efficiently. Today, California is powered
by the most diverse electricity fuel sources in the world,
including natural gas, coal, hydroelectric, nuclear, and
a significant amount of renewables such as wind. This
diversification is the result of effective policies and public
investment. One policy example, known as a public goods
charge (PGC), created a fund of more than $690 mil-
lion per year fund that the state uses to invest in energy
efficiency measures, renewable energy, and research and
development projects that play large roles in the efficient
growth and diversification of the state’s energy supplies.
This fund specifically targets adding renewable energy
sources to the state’s supply. In fact, it provides over
$140 million each year to do so.
The PGC’s renewable energy target is augmented
by the state’s Renewables Portfolio Standard (RPS),
which is another example of effective policy. This
standard requires that all major utilities in the state
generate at least 20 percent of their total electric
supply portfolio from renewable sources by 2010.
This requirement could result in the procurement of
up to an additional 20,000 or more GWh of renew-
able energy each year.
California’s leadership on energy policy and diversi-
fication has helped Californians’ per-capita use of elec-
tricity remain more or less constant over the past thirty
24 Currently, California imports more than 10 percent of its gasoline.
25 CEC. Questions and Answers: California Gasoline Price Increases. [Online] http://www.energy.ca.gov/gasoline/gasoline_q-and-a.html
26 State refineries currently refine 730 million barrels/year. Assuming a 52 percent conversion rate for crude oil into gasoline, the state will need 1.05
billion barrels/year of refining capacity to meet its business-as-usual 23 BGGE/year scenario, yielding a refining capacity shortfall of approximately
323 million barrels/year, or 885,000 barrels/day. The National Petrochemical Refiners Association estimates the cost of expanding capacity at existing
refineries, and $21,000 per barrel/day to build new refineries, yielding a total required state refinery investment between $8 billion and $18.6 billion.
SUMMARY/BACKGROUND](https://image.slidesharecdn.com/bfd70e9f-afdf-428c-aac3-940b83197318-151003215524-lva1-app6892/85/CalSTEP_Action_Plan-25-320.jpg)
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years, while use has grown by 50 percent nationally.
Accordingly, Californians have saved more than $20
billion in electricity and natural gas costs since the PGC
and RPS were established, a number that is predicted to
climb an additional $57 billion by 2011. One can predict
that an increase in transportation efficiency measures
that focus on diversifying California’s transportation
energy sources and increase the use of preferred fuels
would contribute to this effect.
California Adopts Transportation
Energy and AB 32 GHG Goals
California already has in place goals and legis-
lation that can provide the framework for develop-
ment of a diverse, efficient, and secure transporta-
tion energy model.
In 2000, the California legislature passed
AB 2076.27 This legislation directed the CEC and the
Air Resources Board (ARB) to investigate and develop
recommendations for the governor and the Legisla-
ture on a California strategy to reduce petroleum
dependence. Based on this evaluation, they recom-
mended that California adopt a policy to, by 2020,
reduce petroleum use by 15 percent and increase use
of alternative fuels to 20 percent (compared with
2003 levels). The process of transportation energy
analysis and review related to these goals contin-
ues through Integrated Energy Policy Reports (IEPRs)
released every other year by the CEC.
In Governor Schwarzenegger’s response to the
2005 IEPR, he expressed his agreement that the state
“should improve vehicle efficiency and diversify fuels.”
In particular, he asserted that the state should “adopt
a goal of increasing the use of nonpetroleum fuels to
20 percent of on-road fuel consumption by 2020 and
30 percent by 2030 based on identified strategies that
are achievable and cost-beneficial” and expressed his
particular support for state fleet leadership on this issue
and programs that inform and educate consumers on
vehicular efficiency techniques.
The California legislature also passed and the
governor signed the Global Warming Solutions Act28
in early fall 2006. This act establishes a first-in-the-
world comprehensive program of regulatory and mar-
ket mechanisms to achieve real, quantifiable, cost-
effective reductions of statewide GHG emissions. It
codifies the governor’s previously expressed goal by
requiring the state’s global warming emissions to be
reduced to 1990 levels by 2020, which represents
a 25 percent reduction below business as usual.29
The Act can apply to a wide range of GHG sources
and will most likely help drive the use of innovative,
low-carbon methods of energy production such as
renewable approaches. One thing is certain: If the
state is to meet this ambitious AB 32 GHG goal and
the IEPR goals, transportation energy diversity and
efficiency will have to play a significant role.
The State Can Once Again
Lead the Nation
More than forty years of leadership and prec-
edent indicate California not only can succeed in
securing its transportation energy future without
waiting for federal action, but also can reap mul-
tiple benefits by doing so and prompt the rest of the
nation to follow its lead.
Because of California’s severe environmental
problems and historical actions to address them, the
state was granted a waiver under the 1970 Clean Air
Act that allows it to pursue clean air policies that
are more aggressive than the federal government’s.
Since then, California has repeatedly passed auto-
motive standards that exceed federal standards and
set the model for national action.
In the 1960s, California’s actions to control auto-
motive pollution prompted the federal government
not only to set automotive emission standards, but
also to model them after the state’s. This demonstra-
tion of leadership was repeated in the early 1990s
and again in the late 1990s when, frustrated by a
27 AB 2076, Shelley, Chapter 936, Statutes of 2000
28 AB 32, Nunez and Pavley, Chapter 488, Statutes of 2006
29 California Air Resources Board. AB 32 Fact Sheet. [Online] http://www.arb.ca.gov/cc/factsheets/ab32factsheet.pdf](https://image.slidesharecdn.com/bfd70e9f-afdf-428c-aac3-940b83197318-151003215524-lva1-app6892/85/CalSTEP_Action_Plan-26-320.jpg)
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lack of federal action, a handful of northeastern
states adopted California’s Low Emission Vehicle 1
and 2 programs, an action that prompted the cre-
ation of the National Low Emission Vehicle program
and eventually the stringent Tier 2 national program,
which significantly reduced vehicular emissions and
air pollution nationwide.
One of California’s influential acts regarding
automotive standards was passed in 2002. Dubbed
the Vehicle Global Warming Law,30 this legislation
places caps on average fleet vehicular GHG emis-
sions. While the regulation is currently facing legal
challenge, California’s leadership was once again
demonstrated by the fact that ten other states, rep-
resenting one-third of the U.S. population, adopted
this program. If previous experience serves as an
indicator, one might predict that it’s only a matter
of time until the federal government implements a
similar national program.
Other examples of independent California action
and leadership are plentiful. In the late 1980s, Gov-
ernor George Deukmejian signed the California
Clean Air Act and the ARB approved the reformu-
lated gasoline program, paving the way for federal
adoption of the Clean Air Act Amendments and a
national reformulated gasoline program in the early
1990s. California also leads the nation on appliance
efficiency, building efficiency, coastal protection
standards, and, as previously mentioned, stationary
energy policy.
Today, the state is establishing partnerships
around the country and the world in order to meet
its AB 32 GHG goals. In October 2006, Governor
Schwarzenegger announced that he will work with
New York and other eastern states to create markets
to cut GHG emissions. In August 2006, the gover-
nor signed an agreement with British Prime Minister
Tony Blair to collaborate on technologies, scientific
development, and the creation of market-based
mechanisms as well as to engage rapidly grow-
ing countries such as China and India in combating
global warming. Clearly, Governor Schwarzenegger is
following California’s tradition of environmental and
energy leadership.
Solutions Are Ready to Go, Can
Support a “California Advantage”
With such a track record, California is ideally sit-
uated to aggressively pursue a comprehensive trans-
portation energy policy, to reap the “early adopter”
rewards commonly associated with first-mover sta-
tus, and to shape a national transportation energy
policy in its vision. Fortunately, California doesn’t
have to wait for technological solutions or “silver
bullets” to be discovered before it moves forward
with its transportation energy security goals. The
solutions that can make a difference are here today
and ready to go, and their increased use can inocu-
late and grow California’s economy while buffering
the state against the negative consequences associ-
ated with an excessive reliance on oil, thereby estab-
lishing a “California advantage.”
The solutions that can make a difference in the
2020 time frame range from conventional vehicu-
lar technologies that can be improved with rela-
tively minor and inexpensive modifications to more
advanced solutions such as the following: Hybrid
electric systems that combine conventional fuel
engines with electric motors for superior efficiency;
renewable fuels that are produced from organic mat-
ter like crops and waste material; natural gas that
comes from North America and reduces GHG emis-
sions by over 20 percent compared with gasoline;
smart growth development that builds more efficient
ways to live; advanced transit technologies like Bus
Rapid Transit that creates stylish “rails on wheels”;
and many others.
Furthermore, greater use of these technologies
can assist in the creation of a “California advantage”
by buffering the state against the negative conse-
30 AB 1493 Pavley, Chapter 200, Statutes of 2002
31 Peak, Matt, et al. California’s Clean Vehicle Industry. CALSTART, Inc. 2004. [Online] http://www.calstart.org/info/publications/Californias_clean_ve-
hicle_industry/Californias_Clean_Vehicle_Industry.php
SUMMARY/BACKGROUND](https://image.slidesharecdn.com/bfd70e9f-afdf-428c-aac3-940b83197318-151003215524-lva1-app6892/85/CalSTEP_Action_Plan-27-320.jpg)
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California.33 By comparison, there were only about
365 compressed natural gas (CNG) stations (about
140 of them publicly accessible), 340 electric vehicle
charging stations, 235 liquefied petroleum gas (LPG)
stations, 40 liquefied natural gas (LNG) stations, 25
publicly accessible biodiesel stations (at blends of 20
percent or higher), and one publicly accessible E85
ethanol refueling station.
In other states and nations, as the following
examples illustrate, motorists have options when
they pull up to the pump:
·Targeted state-level programs that focus
on expanding agricultural development
and renewable fuel production have led
Minnesota to take the lead and jump-start its
fuel diversity by implementing over 200 E85
stations; Illinois has more than 100.
·Prompted by the two oil shocks of the 1970s,
Brazil now blends gasoline with 25 percent
ethanol, and pure ethanol stations are as
common as gasoline stations. Nearly 80
percent of new car sales in Brazil are “flexible
fuel” capable, which allows these vehicles
to run on any combination of gasoline and
ethanol. Motorists can choose for themselves,
based on price and preference, which fuel
to buy on any given day. Ethanol now makes
up over 15 percent of transportation fuel
consumption and is partially responsible for
the country’s transportation energy self-
sufficiency in 2006.34
·Sweden not only benefits from the importation
of Brazilian ethanol, but has also created
a dedicated biomethane infrastructure.
Renewable fuels such as biomethane and
ethanol are expected to be offered at 2,400
of Sweden’s 4,000 gas stations by 2010. The
popularity of these fuels and the vehicles
that run on them, combined with a law that
requires gas stations that sell more than 3,000
cubic meters of gasoline or diesel fuel per year
to also provide a renewable fuel, is part of the
country’s strategy to break its dependence on
fossil fuels by 2020.
·Iceland has set out to become the first
nation in the world to power its economy
entirely with hydrogen. In 1999, the
country established Icelandic New Energy,
which is a cooperative involving the
Icelandic government, universities, research
institutions, business leaders, and the
companies Shell, DaimlerChrysler, and Norsk
Hydro. The cooperative’s goal is to power
the country's transportation system and
fishing fleet entirely with hydrogen, thereby
saving the country nearly two-thirds of
the $200 million it spends each year on
imported fossil fuels, attracting new foreign
investment, and developing the capacity to
export hydrogen.
·The global natural gas vehicle (NGV) population
increased by 65 percent over the past three
years to 4.6 million CNG vehicles,35 while
the global natural gas station population
increased by 40 percent. In recent years, the
NGV population in Argentina, Brazil, and
Pakistan has grown by 45, 57, and 283 percent,
respectively. India has the largest natural gas
bus fleet in the world, with more than 10,000
buses in service in New Delhi. In Italy, about
a quarter of a million vehicles are running
on CNG. In China, Beijing has more than
2,400 natural gas buses in service.36 German
registrations of CNG passenger cars in October
33 Argyropoulos, Paul N., et al. Analysis of U.S. Retail Market: Consumer Accessibility to On-Highway Diesel Fuel. Hart Downstream Energy Services.
March 2005; p. 14.
34 Statement by David G. Victor of Stanford University, as quoted in: Romero, Simon. “Much Talk, Mostly Low Key, About Energy Independence”. The New
York Times. February 1, 2006.
35 International Association for Natural Gas Vehicles. September 26, 2006.
36 Saw, Guan. Key Drivers for Natural Gas Powered Buses in China. International Association for Natural Gas Vehicles. 7 December 2005. [Online] http://
www.ngvglobal.com/index.php?option=com_content&task=view&lang=en&id=455&Itemid=2
PRIMARY ACTIONS](https://image.slidesharecdn.com/bfd70e9f-afdf-428c-aac3-940b83197318-151003215524-lva1-app6892/85/CalSTEP_Action_Plan-35-320.jpg)
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35
in the absence of federal efficiency requirements. The
primary action in this category is the implementation
of a market-based ESTRR program.
Promoting Efficient Fuel Use Through ESTRR
Unstable gas prices are a significant detriment
to California’s economy, in terms of both their direct
cost and the uncertainty that variable prices have on
investments in substitutes and efficiency. Over the past
eight years, gasoline prices in California have fluctu-
ated between an average of $1.16 per gallon in 1998
and $2.86 per gallon so far in 2006.42 More recently,
gas prices swung between an average of $2.44 in Feb-
ruary 2006 to an average of $3.33 per gallon in May
2006 (and significantly higher in certain areas) then
back down again to an average of $2.43 by the end
of October 2006.43 Under this scenario, where gaso-
line prices can’t be predicted a on day-to-day basis
much less year-to-year, individuals and companies
are unsure whether to develop or adopt advanced and
efficient transportation technologies: They don’t know
what the payback will be, or whether gasoline prices
will collapse altogether, leaving them high and dry, as
happened in the 1980s.
Consequently, efforts to introduce costly new and
efficient transportation technologies have soared
during times of higher oil prices, then been scrapped
as oil producers increased supply to drive down
prices. To a lesser degree, this effect is already taking
place as fuel prices retreat from their summer 2006
highs. According to a Cars.com Consumer Search
Index report, searches for the most fuel-efficient
cars declined the most in fall 2006, while searches
for luxury SUVs with lower fuel economy increased
significantly.44 This effect is confirmed by the fact
that the light-duty truck category, which includes
less-economical pickups, SUVs, and vans, surged by
14.8 percent while sales of more-economical cars
fell by 2.9 percent45 in October 2006 after gasoline
prices fell by 17 percent in September.46 This surge
was even greater at some companies, with General
Motors truck sales up 32.9 percent.47
Realized and potential drops in oil prices signifi-
cantly reduce the private sector’s investment in alter-
native fuels and efficient technologies, as well as their
implementation.Whileannual1-to1.5-percentvehic-
ular efficiency gains from technology can be used to
improve fuel economy, performance, or a combination
of both, public demand for larger and higher-perfor-
mance vehicles is directing much of these efficiency
gains toward technologies that enable manufactur-
ers to provide these types of vehicles. CalSTEP believes
that petroleum prices stabilized above $3 per gallon
would help raise demand for more economical vehi-
cles and therefore prompt automobile manufacturers
to direct some or all of their annual efficiency gains
into fuel economy–enhancing technologies, while
protecting manufacturers’ and motorists’ investments
in these technologies.
Accordingly, CalSTEP recommends that the state
explore and implement an ESTRR program to help
ensure that investments in advanced and efficient
vehicular technologies and alternative fuels aren’t
abandoned. Under ESTRR, California would imple-
ment a Foreign Oil Security fee should retail prices
of petroleum fuels drop below an initial price floor:
the average price of fuel over the six months prior
to implementation or $2 per gallon, whichever is
greater. This price floor would increase by 1 cent per
month for ten years to a maximum level of $1.20 per
gallon above the initial price floor, while each step of
the way returning all collected funds to all California
taxpayers through a tax rebate or credit, which tax-
payers could then use as they wish.
42 CEC. Historical Yearly Average California Gasoline Price per Gallon 1970 to 2006. [Online] http://www.energy.ca.gov/gasoline/statistics/gasoline_cpi_
adjusted.html
43 Ibid., and CEC. California Average Weekly Retail Gasoline Prices. [Online] http://www.energy.ca.gov/gasoline/retail_gasoline_prices.html
44 Green Car Congress. Online Searches for Fuel-Efficient Vehicles Decrease with Price of Gas. October 9, 2006. [Online] http://www.greencarcongress.
com/2006/10/online_searches.html#more
45 Merx, Katie, and Webster, Sarah A. “Lower gas prices spur rebound in truck sales.” Detroit Free Press. November 2, 2006.
46 Hagenbaugh, Barbara. “Demand for Gasoline Surges As Prices Take a Dive.” USA Today. October 19, 2006.
47 Ibid.
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fuel economy as well as more efficient fuel use in exist-
ing vehicles, thereby yielding a savings of 2.9 BGGE per
year beginning in 2020 if implemented by 2010.
The tax rebates ensure that motorists keep more
money in their pockets to save or spend on leisure
goods or other expenses. Under the proposed sce-
nario, if drivers maintain their current level of driving,
the tax rebate would ensure that motorists’ average
aggregate out-of-pocket expenses for transportation
fuel would remain the same. And drivers who choose
to drive more efficient vehicles, drive less, or use
alternative means of transportation would have the
opportunity to save money and add to their income.
The tax rebates also mean that ESTRR is revenue
neutral, deflating the argument that it is a proposed
tax increase. With every dollar that the Foreign Oil
Security fee generates, an equal amount is refunded
to all California taxpayers. This rebate can be pro-
vided in different ways, from a simple check mailed
to all taxpayers to a tax form credit. If the rebate is
linked to the payroll tax, it could serve as a catalyst
for job growth. Cutting the payroll tax is equitable to
both rich and poor and, unlike income taxes, payroll
taxes cannot be avoided. Also, cutting payroll taxes
can be one of the most efficient ways the state can
increase labor demand, employment, and overall eco-
nomic growth. While payroll taxes are levied at the
federal level, the state can take action by providing
state tax rebates to both employers and employees.
If the notion of a price floor makes the challenges
of implementing either of the two proposed options
insurmountable, the state could simply implement
the Foreign Oil Security fee on petroleum fuels or
oil without setting a price floor, but still refund the
collected fees through tax rebates. While potentially
easier to implement, this option might not guaran-
tee the benefits that a predictable price floor would,
for prices could collapse below the levels that would
significantly spur investment in and adoption of
technologies that enhance fuel economy. Still, it is
an option worthy of consideration should the other
prove infeasible.
California Is Well Positioned
to Pursue ESTRR
California is well positioned to implement a
Foreign Oil Security fee under the ESTRR program,
should the need arise. The state’s currently imposed
gasoline tax level is among the lowest in the nation.
According to the Tax Foundation, at 18 cents per
gallon, California’s 2005 per-capita fuel tax collec-
tion is ranked forty-sixth out of fifty states, and is
a long way away from the 27 cents imposed by the
per-capita leader, Montana,49 and the 32.9 cents by
the absolute leader, Wisconsin.50
California’s 18-cent per gallon tax is on top
of federal and sales taxes, which bring the total
amount of gasoline taxes that Californians pay to
approximately 54 cents per gallon.51 This compares
with $4.24 per gallon in Britain and $3.99 per gallon
in Germany—two countries with significantly greater
average vehicle efficiency and more practical pub-
lic transport systems. Such a situation appears to be
quite a paradox for a state engaged in a forty-year
effort to find alternatives to oil, and with a history of
repeatedly increasing taxes on other social ills such
as cigarettes.
49 The Tax Foundation. State Motor Fuel Tax Collections By State, Fiscal Year 2005. 2005. [Online] http://www.taxfoundation.org/taxdata/show/241.html
50 The Tax Foundation. State Sales, Gasoline, Cigarette, and Alcohol Tax Rates by State. December 31, 2005. [Online] http://www.taxfoundation.org/tax-
data/show/245.html
51 CEC data as of November 13, 2006. [Online] http://www.energy.ca.gov/gasoline/margins/index.html
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The Research Institute for Housing America esti-
mated potential public and private savings of up to
$10 billion per year from the types of smart growth
measures contained in the MPOs’ plans.66 A national
analysis performed by the American Public Transpor-
tation Association indicates that one method alone,
transit, can significantly reduce VMT and oil con-
sumption by saving more than 855 million gallons
of gasoline per year67 and reducing CO2 emissions by
more than 7.4 million tons each year.68
Various communities in the United States have
already implemented smart growth policies and are
reaping the associated benefits. In California, three
examples include Windsor, Oakland, and San Mateo.
Parts or all of these cities have integrated such fea-
tures as intermodal centers to provide quick and easy
access to transit and carpools, a bike station for con-
venient bicycle parking or service, a focus on pedes-
trian activity, mixed-use development, proximity to
current or future subway or rail lines, and public space
for community activities. Implementing these features
improved the welfare of the communities’ residents
and, accordingly, the demand to live in such areas.
The community of North Beach in San Francisco,
with its high-density housing and convenient access
to transit, is a smart growth community that allows
for driving to be optional. This has led to a 75 per-
cent reduction in per-capita vehicular miles traveled,
as well as the associated petroleum consumption,
compared with a typical sprawl community such as
San Ramon.69
Other communities across the nation are pursu-
ing smart growth and reducing VMT as well. Atlantic
Station in Atlanta, Georgia, recognized as much as
a 50 percent reduction in the need for automobile
use through the use of smart growth practices.70
Portland, Oregon, absorbed a 26 percent growth in
population from the mid-1980s to the mid-1990s
with only a 2 percent growth in traffic. Energy con-
sumption per capita in Portland dropped 8 percent.71
Portland residents now have shorter average com-
mute times and cleaner air.72
In 1997, Maryland passed its seminal Priority
Funding Areas Act along with four complemen-
tary components that, as a whole, direct the state
to target programs and funding to support estab-
lished communities and locally designated growth
areas, dubbed priority funding areas, and to pro-
tect rural areas that fall outside the priority areas.
Maryland laid the groundwork for this law in 1992
when it passed the Economic Growth, Resource Pro-
tection, and Planning Act, which articulated the
state’s growth policy through seven visions centered
around concentrating development in suitable areas,
protecting sensitive areas, and establishing fund-
ing mechanisms to achieve the visions. The 1992
Act also required local jurisdictions to address these
same visions in their comprehensive plans. Maryland
now has more than 80 programs that help further
smart growth.73
To achieve the goal of reducing Californians’ need
to drive, CalSTEP recommends that the state upgrade
its transportation models, use VMT as the metric for
measuring the energy efficiency and petroleum/
GHG-reducing success of smart growth implementa-
tion, and adopt a goal of reducing VMT by at least 10
percent over approximately twenty-five years. These
actions would be integrated into a Smart Commu-
66 Research Institute for Housing America. Linking Vision with Capital—Challenges and Opportunities in Financing Smart Growth. 2001. [Online] http://
www.housingamerica.org/docs/RIHA01-01.pdf.
67 Shapiro, Robert, et al. Conserving Energy and Preserving the Environment: The Role of Public Transportation. American Public Transportation Associa-
tion. July 2002; p. 18
68 Ibid. p. 5
69 Holtzclaw, John. A Vision of Energy Efficiency. The Sierra Club. Presented at the 2004 ACEEE Summer Study on Energy Efficiency in Buildings. Pacific
Grove, CA. August 22–27 2004.
70 Lovaas, Deron. Smart Growth and Climate Change. PowerPoint presentation. [Online] http://yosemite.epa.gov/oar/globalwarming.nsf/UniqueKeyLook-
up/ADIM5GZQZG/$File/09_Deron_Lovaas.pdf
71 Nelson, Arthur C. “Effects of Urban Containment on Housing Prices and Landowner Behavior,” Land Lines, Lincoln Institute of Land Policy, May 2000; p. 3.
72 Natural Resources Defense Council. Reducing Oil Dependence. [Online] http://www.nrdc.org/air/energy/fensec.asp
73 Maryland Department of Planning. Smart Growth Background. [Online] http://www.mdp.state.md.us/smartintro.htm
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49
ducer incentive payments, the state received $16 to
$20 in economic impact.81 Overall, Minnesota’s drive
to greater use of renewable fuel led to the creation
of 16 ethanol plants that produce 550 million gal-
lons each year, $587 million in output, 2,562 jobs,
and over $1.3 billion in net annual benefit to the
state.82 The Minnesota Ethanol Program was stun-
ningly successful in developing the state renewable
fuel industry, so much so that as of 2001, the state
has not only been able to meet its ethanol needs, but
has also become a net exporter of the fuel.
Similar recently enacted biodiesel programs are
prompting Minnesota to become the first state to uti-
lize biodiesel fuel on a broad scale, and, as with etha-
nol, these programs are leading the state to produce
more fuel as well. In fact, the state went from virtu-
ally no production in 2004 to a biodiesel production
capacity of over 60 million gallons per year in 2005.83
The state’s biodiesel program not only will help reduce
oil consumption, but the Minnesota Department of
Agriculture estimates that it will also lead to $206
million to $515 million in total statewide economic
impacts and create 973 to 2,431 new jobs.84
Missouri believes it can follow the same path as
Minnesota. Bills recently passed by the state’s leg-
islature lead the Missouri Corn Growers Association
to expect ethanol production in the state to reach
at least 350 million gallons by 2008, surpassing the
280-million gallon market that would be created by
the Renewable Fuels Commission and allowing the
state to become a net ethanol exporter.85
In October 2006, Michigan Governor Jennifer M.
Granholm announced the formation of the Michi-
gan Renewable Fuels Commission to promote simi-
lar renewable fuel production and use policies. This
commission was established under Public Act 272 of
2006, which, in addition to creating the commission,
allowed for the creation of new agriculture renais-
sance zones to help spur additional ethanol and
biodiesel plants, among other things.86
Transportation Energy from
California Feedstocks
California has been the nation’s leading agri-
cultural state for over fifty years.87 The California
Department of Food and Agriculture reports that Cal-
ifornia’s agricultural producers received $31.8 billion
for their products in 2004.88 By including renewable
fuels in the state’s fuel diversification strategy, the
CEC believes that California can add several billion
dollars to this figure over the next decade while cre-
ating thousands of new jobs.
California’s renewable fuel production potential
isn’t identical to Minnesota’s. For starters, corn is a
smaller commodity in California. According to the
U.S. Department of Agriculture, California planted
about 540,000 all-purpose acres of corn for grain
in 2005 compared with 7.3 million planted acres in
Minnesota.89 “Grains, oilseeds, dry beans, and dry
peas,” a category that encompasses corn, repre-
sented 2.8 percent of California’s 2002 market value
of agricultural products sold, compared with 41.4
percent in Minnesota. In fact, corn alone represents
approximately 25 percent of Minnesota’s total mar-
ket value of agricultural products sold.90
Instead, the CEC and other organizations have
identified other feedstocks for producing renewable
81 Groschen, Ralph. And Minnesota Department of Agriculture. Economic Impact of the Ethanol Industry in Minnesota. May 2003; p. 13.
82 Minnesota Department of Agriculture. [Online] http://www.mda.state.mn.us/ethanol/default.htm
83 Oregon Environmental Council. Minnesota’s Biofuels Programs: Economic and Environmental Impacts. February 2005; p. 4.
84 Ye, Su. Economic Impact of Soy Diesel in Minnesota. Minnesota Department of Agriculture. July 2004; p. 4.
85 Missouri Corn Growers Association. “House Passes Statewide Ethanol Standard.” April 6, 2006. [Online] http://www.mocorn.org/news/2006/NewsRe-
lease-040606House.htm
86 Office of the Governor. “Governor Granholm Makes Appointments to Newly Created Michigan Renewable Fuels Commission.” October 11, 2006. [On-
line] http://www.michigan.gov/gov/0,1607,7-168--153361--,00.html
87 California Farm Bureau Federation.
88 California Department of Food and Agriculture. California Agricultural Resource Directory 2005.
89 United States Department of Agriculture. National Agricultural Statistics Service. [Online] http://www.nass.usda.gov/Statistics_by_State/
90 Ibid.
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Summary: California Renewable Fuel Production Initiative
Proposed Action
$4 million per year for five years in renewable fuels research and outreach grants
and $20 million in grants focused on the development of an advanced renewable
fuel production industry in California
Objectives
Link California’s increasing biofuel consumption with state-level economic growth
and help commercialize advanced biofuel production in a faster time frame
Outcome in 2020 A vibrant in-state conventional and advanced renewable fuel production industry
Projected Annual
Petroleum and GHG
Reductions
Reinforce and build political and economic support for other CalSTEP-endorsed
actions, including the Alternative Fuels Portfolio Standard
EstimatedTotal Cost $40 million over five years
Implementation Plan
or Proposed Authority
California Energy Commission in consultation with the Department of Food and
Agriculture and the Integrated Waste Management Board
Responsible/Affected
Parties
Universities, nongovernmental organizations, fuel producers, investment community
Proper Avenue of
Enactment
Legislation
State Fleet Leadership Challenge
As of 2003, state agencies, which include the Uni-
versity of California campuses and state universities,
operated nearly 73,000 vehicles that used approxi-
mately 46 million gallons of gasoline and 9 million
gallons of diesel fuel per year.101 By reducing this con-
sumption 20 percent by 2020, the state can set an
example for its 2020 transportation energy goals, save
money, educate the public, develop creative methods
for reducing petroleum consumption, and help expand
the market for efficient and AFVs.
Living Up to the Spirit of the
Energy Policy Act
The Energy Policy Act of 1992 requires AFVs to
account for at least 75 percent of various state gov-
ernment fleets’ annual new light-duty vehicle acquisi-
tions.102 In this regard, California is going beyond its
obligations. As Table 4 (see page 54) indicates, the
state purchased 4,799 vehicles, of which 75 percent
(1,124) were subject to the Energy Policy Act require-
ments in fiscal year 2001–2002. California surpassed
this number by procuring 82 percent (925) of its
Energy Policy Act–qualifying vehicles as AFVs.103
101 California State Vehicle Fleet Fuel Efficiency Report: Volume II. Prepared by TIAX LLC for the CEC, Air Resources Board, and Department of General
Services. 600-03-004. April 2003.
102 U.S. Department of Energy, Energy Efficiency and Renewable Energy. Energy Policy Act. [Online] http://www.eere.energy.gov/vehiclesandfuels/epact/
state/index.shtml
103 California State Vehicle Fleet Fuel Efficiency Report, Volume I. Prepared by TIAX LLC for the CEC, Air Resources Board, and Department of General
Services. 600-03-003. July 2003.
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Cost-Effective Technologies
Can Make a Big Difference
A plethora of heavy-duty technologies are cost-
effective, ready for implementation, and would be
eligible for assistance under the New Transportation
Future and revolving loan programs. A strength of
these programs is that they are focused on the over-
arching goals of petroleum and GHG reductions, rather
than on choosing which technologies to promote.
Examples of potentially eligible technologies include,
but are not limited to, those listed in Table 6.
A recent two-year collaborative study conducted
by members of the Truck Manufacturers Association
and the U.S. Department of Energy indicates that the
widespread application of new aerodynamic technolo-
gies alone could significantly reduce fuel consumption.
The combined effect of all aerodynamic improvements
on one vehicle from techniques such as reducing gap
enclosure, implementing side skirts, and redesign-
ing side mirrors could result in as great as 23 percent
reduction in aerodynamic drag, which would yield a
fuel economy improvement of nearly 12 percent.115
Table 6: Potentially Eligible Technologies under the New Transportation Future
and Revolving Loan Programs
Examples of Potentially
Eligible Projects Description
Petroleum/GHG
Reduction
Potential
Alternative fuel or
hybrid vehicle retrofits
Vehicle conversion to run on natural gas, propane, electricity, or
other ARB-approved alternative fuels
>50%
Auxiliary power
units (APUs)
Efficient units powered by petroleum or alternative fuels that
supply electricity and/or other amenities to slumbering trucks,
thereby enabling the main engine to shut off and save fuel
~5–15%
Vehicular electrification
Enabling trucks to plug in and utilize electricity at truck stops for
auxiliary power, allowing the main engine to shut off and save
fuel during rest
>15%
Low rolling-
resistance tires
Tires, such as the Michelin single-wide tire, that reduce the
rolling resistance and the associated power required to move the
vehicle, saving fuel
4–6%
Truck and trailer
aerodynamics
Side-skirts, moldings, and other aerodynamic vehicular
enhancements
5%
Onboard equipment
that monitors fuel
economy
Enables operators to adopt more economical driving habits 1–2%
Onboard equipment
that monitors tire
pressure
Enables operators to maintain appropriate tire pressure 3%
115 Green Car Congress. Study: Improvements in Large Truck Aerodynamics Could Save US Nearly One Billion Gallons of Fuel Annually. November 14, 2006.
[Online] http://www.greencarcongress.com/2006/11/study_improveme.html#more](https://image.slidesharecdn.com/bfd70e9f-afdf-428c-aac3-940b83197318-151003215524-lva1-app6892/85/CalSTEP_Action_Plan-66-320.jpg)
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·Encouraging state-funded projects, such as
subsidized housing and the construction of
state and local public buildings, to be readily
accessible to public transit.
Usage-Based “Pay As You Drive”
Automotive Insurance
Current nationwide automotive insurance rates
are structured as fixed and can often poorly reflect
the real-world miles that a motorist drives. Accord-
ingly, the EPA estimates that once an individual
purchases a car, roughly 80 percent of their trans-
portation costs remain the same on a monthly basis
regardless of how much or little they drive.119 Under
119 Environmental Protection Agency. Project XL. [Online] http://www.epa.gov/projectxl/progressive/index.htm
120 Edlin, Aaron S., and Mandic, Pinar Karaca. “The Accident Externality from Driving.” Journal of Political Economy 114.5. 2006. pp. 931–955.
121 Litman, Todd Alexander. Pay-As-You-Drive Pricing for Insurance Affordability. Victoria Transport Policy Institute. May 17, 2004; p. 12.
122 Given that reduced driving reduces liability and collision exposure, form pay-as-you-drive automotive insurance in its purest would reduce these two
aspects of motorists’ policies proportionally with miles abated, so an owner of an undriven vehicle would pay only for the comprehensive portion of
the policy.
Summary: Neighborhood Planning Revolving Loan and Transit Use Assistance Programs
Proposed Action
· Establish a Neighborhood Planning Revolving Loan program that expands the use
of program-level EIRs that are based on regional blueprints
· Focus project-specific EIRs on project design and direct on-site environmental
effects while potentially expediting the development approval process
· Provide tax and other incentives and align state spending to spark the greater use
of public transit
Objectives
Fund smart growth implementation by facilitating program-level community planning
and provide incentives for the use of public transit
Outcome in 2020 VMT reduced by 10 percent (contributing)
Projected Annual
Petroleum and GHG
Reductions
Supporter and enabler of CalSTEP’s overall VMT goal that leads to 1.8 BGGE of
petroleum and 18 million tons of GHG reductions by 2020
Estimated Annual
Cost
$20 million per year for five years
Implementation Plan
or Proposed Authority
CTC; Caltrans; Department of Business, Transportation, and Housing
Responsible/Affected
Parties
COGs, MPOs, developers
Proper Avenue of
Enactment
Legislation
this fixed-rate system, where motorists aren’t pro-
vided with significant incentive to reduce their level
of driving, the increase in traffic density from a typi-
cal additional driver increases total statewide insur-
ance costs of other drivers by $1,725 to $3,239 per
year.120 In contrast, usage-based (“pay as you drive”)
automotive insurance, which recognizes actual VMT
and reduces premiums for motorists who drive fewer
miles than their plans allow, can be a powerful tool,
providing a financial incentive for reducing unneces-
sary vehicular trips.
Studies suggest that drivers paying per-mile pre-
miums would be prompted to reduce driving due to
average savings of $50 to $100121 or even more122 on
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their insurance premiums, without raising the cost
of insurance for an average driver.123 In fact, Wash-
ington State Department of Transportation market
survey research indicates that offering vehicle insur-
ance discounts based on reduced driving mileage is
one of the most attractive incentives to encourage
commuters to shift to ridesharing and transit. As a
result, King County Metro, the largest rideshare and
transit agency in the Puget Sound region, is seek-
ing to partner with an insurance company to offer
usage-based insurance to its 150,000 Transit Pass
holders.124 Insurers also like usage-based insurance
because a 10 percent reduction in driving is esti-
mated to result in a 12 to 15 percent reduction in
total vehicular crashes.125 Commuters in urban areas
would especially benefit from the wide rollout of
usage-based insurance, because traffic congestion
delays could be reduced by 10 to 25 percent.126
Usage-Based Insurance
in Other States
In March 2002, the city of Philadelphia passed
Resolution Number 020174, which authorized the
City Council’s Committee on Law and Government to
“conduct a full and comprehensive investigation of
the desirability of offering mile-based insurance to
drivers in…Pennsylvania and directing the Commit-
tee to communicate its findings to the Mayor’s Task
Force on Automobile Insurance Rate Reduction and
the Pennsylvania General Assembly.”127
In June 2003 the Oregon legislature passed HB
2043, which provides a $100-per-policy tax credit
to insurers that offer usage-based pricing. The Ore-
gon Environmental Council is working with the EPA,
Environmental Defense, and others to build a data-
base of potential usage-based insurance customers
to convince the insurance industry that a market for
usage-based insurance exists, and it is meeting with
insurance companies to encourage them to offer
usage-based insurance.128
In Massachusetts, the Environmental Insurance
Agency is partnering with the Plymouth Rock Assur-
ance Corporation to offer policies to members of the
Transportation Alliance, a “green” buying club that
brokers discounts on environmentally friendly prod-
ucts. They are attempting to accumulate data proving
that low-mileage drivers cost less to insure, with the
intent of petitioning insurance regulators in Massa-
chusetts to authorize a usage-based program.129
Real-World Usage-Based
Automotive Insurance
In 1998, the Progressive Group of Companies of
Mayfield Village, Ohio, launched a two-year usage-
based automotive insurance pilot program in Texas
dubbed AutographSM. The program proved popular,
providing savings of 25 percent (on average) over tra-
ditional insurance policies as people chose to drive
less.130 Partly in response to the success of this pro-
gram, Texas passed HB 45 in 2001, the “cents per mile
choice,” which as introduced would have ordered all
automotive insurance companies to eventually offer
cents-per-mile policy prices, but in reality became a
voluntary program designed to encourage industry
cooperation in making mandatory insurance work.131
The success of the Texas pilot program led Progres-
sive to roll out a larger usage-based insurance pro-
gram in Minnesota dubbed TripSense™. Like the Texas
123 Baker, Dean. “Insurance by the Mile: A Simple Way to Slow Global Warming.” Harper’s Magazine. June 2006.
124 Pay-As-You-Drive (PAYD) Auto Insurance. Environmental Defense. [Online] http://www.environmentaldefense.org/article.cfm?ContentID=2205
125 Litman, Todd Alexander. Pay-As-You-Drive Pricing for Insurance Affordability. Victoria Transport Policy Institute. May 17, 2004; p. 12.
126 Pay-As-You-Drive Vehicle Insurance, Converting Vehicle Insurance Premiums Into Use-Based Charges. TDM Encyclopedia, Victoria Transport Policy
Institute. Updated December 14, 2005. [Online] http://www.vtpi.org/tdm/tdm79.htm
127 Resolution No. 020174. Council of the City of Philadelphia. [Online] http://www.environmentaldefense.org/documents/2226_tasco.htm
128 Litman, Todd Alexander. Pay-As-You-Drive Pricing for Insurance Affordability. Victoria Transport Policy Institute. 17 May 2004; p.16
129 State Environmental Resource Center. Pay-As-You-Drive Auto Insurance, Policy Issues Package. [Online] http://www.serconline.org/payd/background.
html
130 Frey, Joe. “Progressive’s ‘Pay As You Drive’ Auto Insurance Poised for Wide Rollout.” [Online] http://info.insure.com/auto/progressive700.html
131 National Organization for Women. CentsPerMileNow. [Online] http://www.centspermilenow.org/](https://image.slidesharecdn.com/bfd70e9f-afdf-428c-aac3-940b83197318-151003215524-lva1-app6892/85/CalSTEP_Action_Plan-74-320.jpg)
CalSTEP_Action_Plan
- 1. The California Secure Transportation Energy Partnership Critical Recommended Actions for Improved Statewide Transportation Energy Security, Greenhouse Gas Reductions, and Economic Growth by 2020 CaliforniaActionPlanFORTRANSPORTATIONENERGYSECURITY
- 2. © 2007 CALSTART, Inc. This Action Plan was independently researched and the assessment and analysis were independently performed by CALSTART staff on behalf of the California Secure Transportation Energy Partnership. Matt Peak served as the principal manager, investigator, and writer. Bill Van Amburg provided primary assistance and editorial review. Tom Brotherton provided key analysis and project support, as did Nate Glasow, Natalie Mims, and Kyle Datta at the Rocky Mountain Institute. Funding for this Action Plan was provided by the Hewett Foundation. This Action Plan is printed on 100% recycled, chlorine-free paper, 50% of which is post-consumer, using vegetable-based inks.
- 3. The California Secure Transportation Energy Partnership (CalSTEP) is a diverse partnership of industry, automotive, business, academia, policy, and nongovernmental professionals working in their individual capacities to create a pro-business, comprehensive action plan that leads to significantly increased transportation energy efficiency and fuel choice in California. CalSTEP believes that such action will expand the state’s economy, enhance security, and reduce global warming emissions and other forms of pollution without compromising personal choice or backsliding on statewide air quality targets. It will also significantly improve productivity, geopolitical relations, and Californians’ quality of life. CalSTEP also believes that with an issue of this importance, waiting for federal action is not a option.
- 4. Table of Contents CalSTEP Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii CalSTEP Action Plan Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Why Reduced Oil Dependence Is Critical for and Beneficial to California . . . . . . . . . . . . . . . . . . . . . . . .3 Three Primary and Seven Supporting Actions to Achieve the Goal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Primary Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Supporting Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Net Outcome: A Stronger Economy through Reduced Oil Dependence and Higher Efficiency. . . . . . .14 Table of Outcomes and Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 California Can Secure Its Transportation Energy Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 The Current Transportation Energy Outlook: A Need for Action . . . . . . . . . . . . . . . . . . . . . . . . . .16 The State’s Stationary Energy Model: Diversify and Consume Efficiently . . . . . . . . . . . . . . . . . . .19 California Adopts Transportation Energy and AB 32 GHG Goals . . . . . . . . . . . . . . . . . . . . . . . . . .20 The State Can Once Again Lead the Nation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Solutions Are Ready to Go, Can Support a “California Advantage” . . . . . . . . . . . . . . . . . . . . . . . .21 Primary Actions — Detailed Descriptions and Supporting Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Alternative Fuels Portfolio Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Market-Based Energy Security Tax Relief and Realignment Program. . . . . . . . . . . . . . . . . . . . . . . . . . .34 Smart Communities Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Supporting Actions — Detailed Descriptions and Supporting Data . . . . . . . . . . . . . . . . . . . . . . . . . .45 California Alternative Fuels Infrastructure Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 California Renewable Fuel Production Initiative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 State Fleet Leadership Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 New Transportation Future and Revolving Loan Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Energy-Independent Vehicle Labeling Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62 Neighborhood Planning Revolving Loan and Transit Use Assistance Programs . . . . . . . . . . . . . . . . . . .66 Usage-Based “Pay-A-You-Drive” Automotive Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 CalSTEP Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 CalSTEP Principles and Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
- 5. ii John Boesel President and Chief Executive Officer, CALSTART James D. Boyd Chairman, CALSTART Board of Directors (Commissioner, California Energy Commission) Tim Carmichael President and Chief Executive Officer, Coalition for Clean Air Maurice Gunderson Venture Partner, CMEA Ventures Jan Hedegaard-Broch Vice President and General Manager, Volvo Car Corporation Fred Keeley Treasurer, Santa Cruz County (former Speaker Pro Tempore, California State Assembly) Neil Koehler President and Chief Executive Officer, Pacific Ethanol Andrew J. Littlefair President and Chief Executive Officer, Clean Energy CalSTEP Partners
- 6. iii Reg Modlin Director of Environmental and Energy Planning, DaimlerChrysler Dr. Maxine Savitz Director, The Washington Advisory Group Dr. Beverly Scott General Manager and Chief Executive Officer, Sacramento Regional Transit District Dr. S.M. Shahed 2002 President, SAE International; Corporate Fellow, Honeywell Turbo Technologies George Shultz Distinguished Fellow, Hoover Institution Lee Stein Managing Member, Virtual Group L.L.C. Dr. James Sweeney Stanford University; Director, Precourt Institute for Energy Efficiency Dr. Paul Zorner Senior Director, Business Development, Diversa Corporation
- 8. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 2 CalSTEP believes that it is critical to immediately reduce California’s dependence on petroleum and increase its share of nonpetroleum fuel use. Such action will expand the state’s economy, enhance security, protect California from severe energy supply and price shocks, and help meet California’s transportation and greenhouse-gas (GHG) emissions goals without compromising personal choice. For the past year and a half, CalSTEP partners and staff have worked in a collaborative process to identify, quantify, and select the most effective, politically via- ble, and economically beneficial actions the state can take to strengthen its transportation energy status. This resulting California Action Plan focuses on state-level measures that will achieve the following goal: A sustainable reduction in the overall on-road petroleum fuel consumption in California to at least 15 percent below 2003 levels by 2020, while increasing the proportion of alternative transportation fuels in the state to at least 20 percent of total on-road transportation fuel demand. CalSTEP’s targets represent amounts that the state and governor, in part or as a whole, already have concluded are required for California to reduce the negative impacts associated with overdepen- dence on imported oil. Since California used 18.1 bil- lion gasoline gallon equivalents (BGGE)1 of on-road gasoline and diesel in 2003, CalSTEP’s target means deviating from a business-as-usual path on which the state would become more dependent on petro- leum by consuming 23 BGGE in 2020,2 and instead consume 15.4 BGGE. The Goal - 7.6 BGGE Reduced in 2020 15.4 BGGE Consumed 1 BGGE represents all fuels in energy-equivalent terms as a gallon of gasoline. 2 18.1 and 23 BGGE numbers obtained from: Kavalec, Chris, et al. Forecasts of California Transportation Energy Demand. California Energy Commission. CEC-600-2005-008. April 2005; p.9, Figure 3. (Assumes 1.1096 volumetric energy density ratio between diesel and gasoline.)
- 9. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 3 7.6 BGGE Petroleum Reduced This Action Plan directs its attention to three distinct and complementary areas of action to supplement the 15.4 BGGE of petroleum consumed in 2020: ·Diversifying the state’s fuel supply; ·Improving vehicular efficiency; and ·Reducing the need to drive. CalSTEP chose to focus its atten- tion on these three areas of action because they are complementary and provide a comprehensive look at the way Californians travel by road. These areas follow California’s successful stationary energy strategy, allowing for the diversification of transportation energy sources and their efficient use while incorpo- rating the more structurally related issue of reducing the need to drive. The Action Plan also recognizes that a major public education campaign is required to support the transition to a more energy efficient, secure, and prosperous society. There are no silver bullets: No single action alone, or category of actions, is sufficient to achieve the results needed. But, if taken as a whole, the CalSTEP recommended actions will reduce statewide oil dependence by 7.6 BGGE and vehicular GHG emissions by 62 million tons each year, while leading to multiple and long-lasting economic and other benefits. This is a significant and meaningful outcome that is fully achievable through the actions CalSTEP outlines. Why Reduced Oil Dependence Is Critical for and Beneficial to California The United States’ high consumption level, along with a steady and significant increase in demand from emerging economies such as China and India, is leading the world to consume ever greater amounts of oil. This problem could be significantly compounded if geologists’ global “peak oil” predictions come true. Some speculate that the peak has already happened for the production of light, sweet crude oil, leading to problems such as increased price volatility. This volatility is also driven by the fact that, as indicated in Graph 1, California imports over 40 percent of its oil, which expands the state’s trade deficit and weakens its economy. The international race to discover and develop new oil fields that these factors prompt is leading to the increased support of unstable and undemo- cratic countries. It’s also leading to the rapid devel- opment of nontraditional hydrocarbons, such as oil shale and sands. While this may appear to be a positive outcome, given that the United States and Canada have significant reserves of these nontradi- tional hydrocarbons, problems lie in their substantial production-related energy inputs and environmental impacts, including significant GHG emissions. Even without the increased production of non- traditional hydrocarbons, excessive consumption of fossil fuels is the leading source (41 percent) of California’s GHG emissions. If unchecked, California’s growing oil demand will make it difficult for the state to meet its Assembly Bill (AB) 32 GHG goals, Graph 1: California Petroleum Sources Domestic sources decline as foreign imports increase. Source: California Energy Commission SUMMARY/BACKGROUND
- 10. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 4 thereby endangering its economy. Another poten- tial source of economic risk comes from California’s lack of spare petroleum refining capacity. It would require between $8 billion and $18.6 billion worth of refining capacity to meet all of the state’s projected growth in transportation energy demand between 2003 and 2020 solely from petroleum sources. After more than thirty years of ineffective national policies, dependence on imported oil has increased in the nation as a whole. Fortunately, in the absence of federal leadership, the state can take action. In fact, forty years of leadership and precedent indicates that California can not only succeed in securing its own transportation energy future, but can also reap multiple benefits by doing so and prompt the rest of the nation to follow its lead. By modeling action on the state’s stationary energy policy, which teaches the virtues of energy diversity and efficiency, California can help or fully achieve its adopted transportation and AB 32 GHG goals and create a “California advantage” that buf- fers the state against the negative consequences associated with an excessive reliance on oil, while helping to grow the economy through the use of new technologies and fuels in which the state can be a worldwide leader. Three Primary and Seven Supporting Actions to Achieve the Goal CalSTEP supports actions in the three aforemen- tioned distinct and complementary areas. The actions within these areas can be divided into: Primary Actions Supporting Actions Primary actions are those that achieve the bulk of the petroleum and alternative fuels goals and are most urgent to adopt and implement. Supporting actions complement and further enable the primary actions while leading to additional statewide economic, educational, and other benefits, but on their own may not achieve the stated goal. Each of CalSTEP’s primary and supporting actions helps to diversify California’s fuel supply, increase its use of efficient vehicles, and reduce Californians’ need to drive; each action also helps to make the state a better place to live. CalSTEP has identified three high-priority actions that it urges the state to take immediately to begin moving toward a secure and prosperous transporta- tion energy future: Primary Actions 1 Codify Governor Arnold Schwarzenegger’s fuel diversity goal by implementing a fuel- neutral, minimum-pooled Alternative Fuels Portfolio Standard of at least 10 percent by 2012 and at least 20 percent by 2020 that will increase the availability of and access to a diverse array of alternative refueling stations. 2 In support of the directives outlined in Governor Schwarzenegger’s Executive Order S-17-06, which focuses on developing market-based solutions to global warming, implement an Energy Security Tax Relief and Realignment (ESTRR) program consisting of a Foreign Oil Security fee coupled with a tax rebate for all California taxpayers, which would use market mechanisms and price signals to significantly increase the efficient use of petroleum and help protect efficient- transportation capital investments. 3 Initiate a Smart Communities program that encourages energy-efficient and climate- friendly land-use policies and practices by providing new state transportation funding to local governments that will implement regional blueprints that reduce the need to drive.
- 11. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 5 3 In his response to the 2005 California Energy Commission Integrated Energy Policy Report, Governor Schwarzenegger asserted that the state should “adopt a goal of increasing the use of nonpetroleum fuels to 20 percent of on-road fuel consumption by 2020 and 30 percent by 2030 based on identified strategies that are achievable and cost-beneficial.” Supporting Actions Diversify the state’s fuel supply California Alternative Fuels Infrastructure Partnership California Renewable Fuel Production Initiative Improve vehicular efficiency State Fleet Leadership Challenge New Transportation Future and Revolving Loan programs Energy-Independent Vehicle Labeling Program Reduce the need to drive Neighborhood Planning Revolving Loan and Transit Use Assistance programs Usage-Based “Pay As You Drive” Insurance The supporting actions that complement and fur- ther enable the primary actions while leading to addi- tional statewide benefits can be broken down into the three CalSTEP distinct and complementary areas. Primary Actions Working through its deliberative process, in which progress was measured in economic, geopolitical, and environmental costs and benefits, CalSTEP identified three high-priority actions that it urges the state to take immediately to begin moving toward a secure and prosperous transportation energy future. Alternative Fuels Portfolio Standard California’s dedicated alternative fuel infrastruc- ture and use is limited, displacing approximately 53.5 million of the nearly 19 billion gallons of petroleum consumed in 2005. Today, California motorists are forced to deal with what can only be described as a “monofuel” culture (Graph 2, see page 6). This isn’t the case, however, in other states such as Minnesota or in nations such as Brazil and Sweden, where motorists have options when they pull up to the pump. With the implemen- tation of thoughtful, well-crafted policies, California can also diversify its fuel supply and provide motor- ists with nonpetroleum options when they refuel. Accordingly, CalSTEP recommends the imple- mentation of an Alternative Fuels Portfolio Standard (AFPS) that requires refiners to provide 10 and 20 per- cent of the state’s transportation energy as alternative fuels by 2012 and 2020, respectively. An AFPS would establish a clear means by which the petroleum goals endorsed by two state agencies and the governor3 could be implemented and parallel the state’s dynamic AB 32 Global Warming Solutions Act process. The implementation of an AFPS would be modeled on the structure used to implement the more lim- ited federal renewable fuels standards, which direct refiners to blend renewable fuels such as ethanol and biodiesel with petroleum fuels in order to reduce petroleum consumption and GHG emissions. CalSTEP believes that California should go beyond this directive and adopt a broader and more flexible AFPS that could include other nonpetroleum California Air Resources Board–approved alternative fuels and blends such as natural gas and propane. The AFPS, as opposed to the federal renewable fuels standards, is the approach of choice in Connecticut and Hawaii. In addition to ensuring that the governor’s pre- viously outlined broad alternative fuel goals are met, an AFPS would give industry the flexibility to SUMMARY/BACKGROUND
- 12. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 6 choose the most cost-effective and expedient solu- tions that meet the standard’s requirements while potentially providing motorists with a greater level of choice when they pull up to the pump. Further- more, an AFPS allows time for resolving air pollu- tion uncertainties associated with low-blend biofu- els (progress is currently being made), but enables the goal to be met regardless of whether these uncertainties are resolved. To facilitate the practicality of this requirement, the AFPS proposal would direct the California Energy Commission (CEC) to design and implement a credit trading program that allows obligated parties to comply with the AFPS standard through the pur- chase of tradable credits if they cannot or do not wish to blend or sell alternative fuels. Market-based Energy Security Tax Relief and Realignment CalSTEP believes that for significant progress to be made on fuel diversity and vehicular effi- ciency, Californians and the automobile indus- try need to have clear signals of the costs of fuel as well as access to markets that reward efficiency. Concurrently, California’s governor and legislature will seek to develop market- based solutions to global warming to support the state’s AB 32 Global Warming Solutions Act activities, as directed by Executive Order S-17- 06.4 Accordingly, CalSTEP recommends that the state explore and implement an Energy Security Tax Relief and Realignment (ESTRR) program that would use market mechanisms and price signals to significantly increase the efficient use of petroleum and protect efficient-transportation capital invest- ments while helping to satisfy both of the afore- mentioned goals. Under ESTRR, the state would couple a revenue- neutral California Foreign Oil Security fee with a tax rebate or credits that would return all collected funds to all California taxpayers, who could use the money however they wish. The fee would be imple- mented if retail prices of petroleum fuels drop below an initial price floor of $2 per gallon or the average price of fuel over the six months prior to implemen- tation, whichever is greater, thereby stabilizing the price. This price floor would increase by $0.01 per month for ten years to a maximum level of $1.20 above the initial price floor, while each step of the way returning all collected funds to Californians. Alternatively, if it were easier to implement, the fee could be applied to barrels of oil at a level that sta- bilizes prices to refiners at an average of the price over the six months prior to implementation, and then raises it by 40 cents per barrel each month for ten years to approximate the per-gallon prices paid for petroleum fuels. 4 Among other things, S-17-06 calls for the creation of a Market Advisory Committee to make recommendations to the Air Resources Board on or before June 30, 2007, on the design of a market-based compliance program to support AB 32. Graph 2: California’s Petroleum and Alternative Fuels Demand—2005 (millions of gallons) California’s dedicated alternative fuel infrastructure and use is small, displacing approximately 53.5 million of the nearly 19 billion gallons of petroleum consumed in 2005. Source: California Energy Commission
- 13. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 7 The Foreign Oil Security fee would provide stabil- ity to petroleum prices (see Graph 3) that has so often killed off investments in alternative fuels and efficient technologies. This price floor would also signal the long-term, steady increase in the cost of petroleum necessary for the automobile industry to justify investment in and speed the offering of more fuel-efficient vehicles, while protecting travelers by returning collected funds in the form of tax rebates or credits. The fee would not apply to alternative fuels, but motorists who use alternative fuels would receive the same tax rebates, thereby encouraging the use of such fuels. Altogether, CalSTEP believes this option would prompt automotive fuel efficiency gains across the board as well as spur the overall efficient use of fuel in existing vehicles, leading to annual savings of at least 2.9 BGGE and 29 million tons of GHG emissions in 20205 while maintaining consumer choice and safety. A growing chorus of bipartisan leaders and the pub- lic are rallying behind and voicing support for measures like ESTRR, including such luminaries as Alan Greens- pan, N. Gregory Mankiw, and Andrew A. Samwick, among others. In fact, a Council on Foreign Relations independent task force chaired by John Deutch and James R. Schlesinger mentioned a similar measure as a way to minimize the national security consequences of oil dependence. The public is looking for smart action on this issue, with as much as 59 percent in favor of an ESTRR-type measure to fight our oil dependence and increasing level of GHG emissions. It is clear that significant progress on vehicular efficiency—progress that goes beyond the current national approach and that meaningfully assists the state in achieving its transportation energy and GHG goals—won’t be achieved unless there is a significant increase in the introduction of efficient technologies in vehicles prompted by a decrease in some of these technologies’ costs and greater pub- lic demand for efficient vehicles. For this reason, it is in California’s interest to address these issues by adopting a market-based program like ESTRR to reduce petroleum use. Smart Communities Beyond vehicle technologies and fuels, it is essen- tial that the state find ways to reward energy-efficient and climate-friendly land-use planning. California’s current development patterns cause congestion and traffic that cost consumers and businesses approxi- 5 This number depends on how high the price floor is above normal retail petroleum fuel prices. This calculation assumes a price floor that is $1.20/ gallon above unadjusted retail price levels beginning in 2020 and a corresponding short-term petroleum demand elasticity of -0.25. A long-term petroleum demand elasticity of -0.6 indicates this measure would yield even greater petroleum and GHG reductions over time. Graph 3: California Gasoline Prices 1996–2006 The rise and fall of gasoline prices in California creates an unpredictable investment environment for transportation capital. Source: California Energy Commission SUMMARY/BACKGROUND
- 14. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 8 mately $17 billion annually and result in more than 665 million gallons of wasted fuel per year. Unless sig- nificant changes are made in the way the state funds its transportation system, these problems will only increase as the state’s population continues to grow.6 Accordingly, CalSTEP recommends that Califor- nia establish a Smart Communities program that upgrades the state’s transportation models so that the cost savings associated with energy-efficient and climate-friendly land-use planning can be fully realized. The recommended program takes a compre- hensive approach that links new state infrastructure spending—such as that authorized in the recently passed Housing Bond and the Water Quality, Parks, and Conservation Bond—to the implementation of regional blueprints that will not only prevent sprawl, but will actively reduce the need to drive and cut the overall miles traveled by 10 percent over approxi- mately twenty-five years. A primary means of accomplishing this goal could be the greater use of smart growth, defined as a set of characteristics associated with well-designed trans- portation systems and land use that allows people to live closer to where they work and provides con- venient transit options. Many communities, such as San Francisco, Atlanta, Portland, and Maryland, have already adopted smart growth strategies to signifi- cantly reduce the need to drive. Various reports cite the potential smart growth has to reduce the need to drive and save motorists fuel and other costs, which could add up to $10 billion a year or more. The flex- ibility of the Smart Communities program would allow additional options that have demonstrated significant vehicle miles traveled (VMT) reductions to also be implemented to meet regional targets. In all cases, funding priority under Smart Com- munities would be based on criteria including the expected level of VMT reduction. The state could even issue grades to regions and municipalities based on their VMT reduction plans, ranking those regions whose blueprints demonstrate the greatest level of VMT reduction highest. The program would be administered by the Department of Business, Trans- portation, and Housing, the California Transportation Commission, and local councils of governments. Supporting Actions Each of these supporting actions complements and further enables the progress that can be made through the primary actions while leading to addi- tional statewide economic, educational, and other benefits and reducing statewide petroleum con- sumption even if they are pursued independently. California Alternative Fuels Infrastructure Partnership CalSTEP recommends a California Alternative Fuels Infrastructure Partnership between the state government, automobile manufacturers, and fuel retailers that provides incentives for the concurrent rollout of alternative refueling stations and alterna- tive fuel–capable vehicles. This program would make state-sponsored finan- cial support for a California Air Resources Board– approved dedicated alternative refueling infrastruc- ture contingent upon vehicle population growth, thereby ensuring that alternative fuel vehicles (AFVs) won’t be introduced without infrastructure develop- ment, and that the state won’t waste money sup- porting infrastructure for nonexistent vehicles. This approach spreads the responsibility for alternative fuel development among the state, automakers, and fuel retailers, but recognizes and mitigates the financial risk that retailers take on. The program would provide a state grant aver- aging $50,000 for a specific alternative fuel’s infra- structure development whenever 6,000 vehicles, on average, that can run on the fuel are sold in the state, with a cap in total funding of $9 million per year over ten years. The goal is to match a sufficient quantity of alternative fuel stations with vehicles by 2020 to make a tangible difference in petroleum and GHG reduction and help establish a business case that encourages fuel retailers to continue adopting 6 California’s population is predicted to grow nearly 40 percent by 2025.
- 15. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 9 alternative fuels even after the subsidies run out. Incentives for early station adoption and vehicle pro- duction are provided by front-loading the program. If fully exercised, this program would help promote the creation of 1,800 alternative fueling stations and 11 million alternative fuel–capable vehicles, totaling approximately 20 percent of the transportation refu- eling infrastructure and approximately 33 percent of the state’s light-duty vehicle fleet by 2020. California Renewable Fuel Production Initiative CalSTEP recommends a California Renewable Fuel Production Initiative that overcomes barriers to in-state conventional and advanced renewable fuel production and feedstock use, thereby promot- ing industry growth and economic prosperity as the state increases its renewable fuel consumption. Under this program, the state would create (and the CEC would administer in coordination with the Department of Food and Agriculture and Integrated Waste Management Board) $20 million worth of competitive research and outreach grants over five years focused on high-priority areas and objectives that overcome the key barriers to sustainable pro- duction of renewable transportation fuels from crops and waste sources in California. This program also would direct the state to mirror a program initiated by New York Governor George Pataki that jump-starts advanced renewable fuel production from in-state resources by providing up to $20 million to as many as four applicants or teams of applicants that successfully demonstrate the techni- cal, financial, business, and organizational capability to construct a pilot- scale or first-production scale enzymatic-hydrolysis, gasification lignocellulose-to- ethanol, or biomass-to-liquid facility that utilizes in- state plants and materials. Recipients must use the information derived from their facilities’ operation to develop commercial-scale production facilities. Such a California-based program would harness the state’s ability to overcome first-mover risks asso- ciated with early advanced renewable fuel produc- tion from in-state feedstocks and solve early pro- duction problems and logistics, both of which are necessary before investors can be expected to com- mit large-scale capital. While not directly responsible for reductions in petroleum use or GHG emissions, the California Renewable Fuel Production Initiative would complement and augment CalSTEP’s other alternative and renewable fuel–related programs. A future action incorporated into this program could be financial incentives for use of in-state feedstocks from underutilized land or waste resources. Incen- tives could be production tax credits or even abate- ment for biofuel growers or biorefinery operators on the proportion of the fuel they produce from these preferred feedstocks. California can expect significant economic benefits from helping to develop an in-state renewable fuels industry. The state that took the most aggressive action to develop its own renewable fuels, Minnesota, today receives a sixteen- to twenty-fold return on investment for its ethanol program (see Graph 4 on page 10).7 Its drive to greater use of renew- able fuels led or is leading to the creation of doz- ens of plants that produce over 600 million gal- lons each year, as much as $1 billion in output, as many as 5,000 jobs, and over $1.3 billion in net annual benefit to the state. California can follow this same path: A CEC report states that, at 2005 consumption levels, a California ethanol industry alone would create approximately 8,000 jobs and provide statewide economic benefits of $5 billion over a twenty-year period. 7 For every $1 paid for ethanol producer incentive payments, the state receives $16 to $20 in economic impact. SUMMARY/BACKGROUND
- 16. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 10 State Fleet Leadership Challenge CalSTEP recommends that the state issue a State Fleet Leadership Challenge whereby the state would live up to the spirit of the federal Energy Policy Act, use its formidable buying power to expand market size, and lead others to reduce petroleum consump- tion by 20 percent by 2020 by setting an example with the state fleet. Based on a similar challenge issued by North Carolina, this program prescribes a goal—not the methods for achieving the goal. The advantage of such a structure is that a variety of methods can be utilized. The state can meet the target by fuel swap- ping, blending renewable fuels with petroleum fuels, adopting AFVs, phasing in more fuel-efficient vehi- cles, or some other innovative method. The state has ample opportunity to reduce its petroleum consump- tion, given the fact that of California’s over 5,200 alternative fuel–capable vehicles in the 2002 state fleet, only 63 (1.2 percent) were fueled with alterna- tive fuels, leaving the remaining 98.8 percent to be fueled with conventional gasoline. By taking a leadership role, state fleets are not only using their formidable purchasing powers to expand markets, but are actively engaged in the search for creative and cost-effective techniques for reducing petroleum consumption. If North Carolina can employ these methods and set a goal for 2010, surely California can adopt the goal of 20 percent petroleum-use reduction by 2020. This program can extend itself by serving as a beacon and a challenge to county and municipal fleets, many of which purchase vehicles based on a state specification, and eventually to private fleets, including those doing business with the state. New Transportation Future and Revolving Loan Programs CalSTEP recommends an increase in state-level investment in vehicle technologies that can reduce vehicular petroleum consumption and GHG emis- sions while making the air cleaner. California must serve as a leader and encourage industry innovation, which such investment would demonstrate. Specifi- cally, CalSTEP recommends the creation of: Graph 4: Minnesota Ethanol Production, Producer Payments, and Economic Impacts As of 2001, Minnesota not only had met its ethanol needs, but also had become a net exporter of the fuel. Source: Minnesota Department of Agriculture
- 17. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 11 ·A $140-million-per-year New Transportation Future program that provides competitive grants and/or creates inducement prize competitions focused on facilitating the commercialization of advanced, low-GHG transportation technologies and fuels that reduce oil consumption and overall emissions in light-, medium-, and heavy- duty vehicles, while also providing assistance for these technologies’ adoption. ·A $25 million low-interest revolving loan or loan guarantee fund to reduce heavy-duty vehicle (Classes 3–8) petroleum consumption and GHG emissions. This program recognizes that there is a shortfall of public investment in advanced transportation technol- ogies and that continued leadership is needed for all types of vehicles, including light, medium, and heavy duty, to overcome risks and speed development. It cre- ates a New Transportation Future program that would invest $70 million per year in competitive grants for research, development, and demonstration of these technologies. By ranking grant applications based on the level of petroleum and GHG and other emissions reduced per dollar invested, these competitive grants would replicate the success of the current Carl Moyer program (which has become famous for its cost-effec- tive reduction of criteria pollutant emissions), in the area of petroleum and GHG reduction and on a broader scale by applying it to light-, medium-, and heavy-duty vehicles. If the track record of the Moyer program is a guide, a similar program focused on transportation energy and GHG emissions would provide cost-effec- tive petroleum and GHG reductions while utilizing technologies capable of rapid deployment. A portion of the funds allocated under this pro- gram could be used to initiate a series of high-pro- file inducement prize competitions and/or a series of smaller targeted competitions that identify cri- teria for meeting goals and targets (including prod- uct characteristics and sales requirements) and then reward winners that achieve the goals with a cash prize and/or advanced market commitments. This model could be used to overcome numerous large and small barriers to reducing petroleum consump- tion and spurring alternative fuel use in California. Benefits could include: ·The creation and deployment of efficient transportation technologies and vehicles; ·The production and sale of various alternative fuels or fuel-related technologies; ·The creation and deployment of mass transportation technologies and platforms; ·The demonstrated reduction of various communities’ need to drive; ·Positive national media exposure; and ·Increased private investment in California companies. Inducement prize competitions have a long track record of spurring innovation. For example, the 1927 Orteig Prize prompted Charles Lindbergh’s solo flight across the Atlantic Ocean and revolutionized mod- ern aviation; the 2004 Ansari X PRIZE revolutionized personal space flight; and NASA’s Centennial Chal- lenges will provide a total of $250 million to gener- ate innovative solutions to space technology prob- lems. Inducement prize competitions also regularly demonstrate superior cost-effectiveness, leveraging as much as a 50:1 private/public investment ratio. Whether a competitive Moyer-like grant or an inducement prize competition is employed, the prime contractors or recipients of the investments allo- cated under the New Transportation Future program would be California companies, universities, and/or nongovernmental organizations and their partners. The New Transportation Future program would provide $70 million per year for incentives to adopt climate-friendly transportation technologies, such as dramatically more fuel-efficient vehicles, tech- nologies spurred by the inducement prize competi- tions, and incentives to build alternative refueling stations (as described in the California Alternative Fuels Infrastructure Partnership). The funding could include incentives similar to those offered by the SUMMARY/BACKGROUND
- 18. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 12 Environmental Protection Agency’s (EPA) Smart- WaySM program to reduce heavy-duty vehicle fuel consumption and GHG emissions. Because heavy-duty vehicle operators can receive a directfinancialpaybackbyadoptingefficiency-enhanc- ing technologies, CalSTEP recommends the creation of a $25 million revolving low-interest loan program to complement the New Transportation Future program and assist with the further adoption of these technolo- gies. Under this program, any heavy-duty vehicle owner or operator, including fleets and independent opera- tors, would be eligible to apply for funding. Such a pro- gram could be particularly helpful to independent truck operators, who usually purchase new trucks from fleets once the trucks are about five years old and then drive them for another twenty years or so. Energy Independent Vehicle Labeling Program CalSTEP recommends the creation of a voluntary vehicular labeling program that quickly and clearly informs shoppers about new low-petroleum/GHG vehicles at dealerships, thereby educating people about, increasing the demand for, and prompting manufacturers to produce more of these types of vehicles. This label would provide quick and easy identification of those vehicles that meet established efficiency and GHG-reduction goals. Repeatedly, “green” labeling has effectively curbed the purchase and use of products that are associated with various social issues or encouraged the purchase and consumption of those products that are more socially desirable. Some notable examples include the “dolphin safe” tuna label, the EPA’s Energy Star® label, and the Forest Stewardship Council’s seal of approval. The Energy-Independent Vehicle Labeling program would parallel these efforts by creating a single qualifying label with two grades: A Platinum label, which focuses on a vehicle’s absolute GHG emissions and oil consumption, and a Gold label, which focuses on a vehicle’s relative emissions and consumption by footprint size. This dual-grade label- ing approach encourages people to drive the most energy-independent vehicles on the road, or encour- ages them to select the most energy-independent vehicles that meet their needs. It’s important to note that the program estab- lishes a standard that increases over time. Every vehicle could achieve this standard; there is no limit on the number, as long as vehicles meet the prees- tablished goal for each model year. The success of this program largely depends on the design and differentiation of the logos, plus con- sumers’ knowledge of their existence and subsequent understanding of their meaning. To begin addressing these issues, the state would hold a design competi- tion for the labels as part of the program’s initial launch and publicity campaign. Such a competition has precedent in California: In 2002, the state chal- lenged its residents to come up with a design for the state quarter. Over 8,000 people submitted designs (see Picture 1) within three months, from which Picture 1: State Quarter Design Competition Submissions Within three months, the state quarter design competition generated over 8,000 submissions, from which a winner was selected. CalSTEP believes a vehicular labeling design competition could achieve even better results. Source: http://www.quarterdesigns.com/proposed/californ.html
- 19. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 13 a twenty-member commission selected the ulti- mate winner. A vehicular labeling design competi- tion could achieve even better results by generating awareness of the problems of GHG emissions and oil dependence, enthusiasm for addressing them, supe- rior out-of-the-box designs, publicity, and a grass- roots source for the designs’ origination. Automakers would have the option of whether to affix labels to their vehicles that are recognized under the program, but would most likely do so in order to associate their vehicles with the supe- rior performance standards of the program and the labels’ growing prestige. Neighborhood Planning Revolving Loan and Transit Use Assistance Program Like other CalSTEP programs, the Smart Com- munities program is inherently flexible. The focus of the program is VMT reduction, but it allows regions to determine their preferred method. The program also seeks to provide multiple tools to achieve the outlined goals. Accordingly, CalSTEP proposes a Neighborhood Planning Revolving Loan program, to be administered by the Department of Housing and Community Development, which will assist with the preparation and implementation of regional blue- prints that meet the Smart Communities program goal of reducing driving by 10 percent. The state’s creation of a revolving loan fund that is replenished by the fees developers would have paid for project-level environmental impact reviews (EIRs) pro- vides communities with the resources for programmatic rather than parcel-only planning, but without costing developers more money or time. Such planning would help account for the ways in which properties and neighborhoods interact, adjust for driving increases, and streamline the process by which developers can obtain approval to implement smart growth development. By developing overall plans for blocks of prop- erties in advance, communities can streamline the development process while maintaining neighbor- hood goals. Developers would pay back the costs of the planning as part of their existing fees for devel- oping properties within the blocks. At a funding level of $20 million per year for five years, the state would help overcome the largest bar- rier to community planning on a programmatic level and, at its fully funded level, enable more than thirty concurrent programmatic EIRs, thereby significantly assisting with smart growth development. Finally, because of the significant petroleum and GHG reduction potential of public transporta- tion, CalSTEP also proposes that the state examine and offer incentives that spark greater use of public transit, and take steps in this area to further align state spending with the goal of reducing the need to drive. Such incentives and alignment actions could include tax incentives for employer-sponsored tran- sit commute programs, the establishment of privately funded amenities to public transit development proj- ects, the construction of thoroughfares designed for multiple transportation modes, and the location of state-funded buildings close to public transit. Usage-Based “Pay As You Drive” Insurance Typical automotive insurance rates are fixed, often poorly reflect how many real-world miles a motorist drives, and fail to provide incentives for motorists to reduce their amount of driving. Usage-based auto- motive insurance, however, recognizes actual miles driven and reduces premiums for motorists who drive fewer miles than their plans allow. This type of insurance is also known as “pay-as-you-drive,” and it can be a powerful incentive to reduce driving by providing a financial reward to motorists who do so. Various regions are taking steps to enable usage- based automotive insurance. Cities such as Philadel- phia; states such as Oregon, Massachusetts, and Min- nesota; and countries such as the United Kingdom realize the benefits of usage-based insurance. These benefits include providing incentives to reduce VMT due to savings of $50 to $100 or more on motorists’ insurance premiums as well as a 12- to 15-percent reduction in vehicle crashes. CalSTEP recommends modifying the California Code of Regulations to permit insurance providers SUMMARY/BACKGROUND
- 20. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 14 to implement voluntary programs and technologies that more accurately track vehicular mileage, and to provide these insurers with the authority to offer discounts based on the adoption of such programs, the reporting of miles traveled, and the reduction of VMT. Such action would allow companies that are currently offering usage-based auto insurance poli- cies, such as Progressive Insurance and GMAC Insur- ance, to offer such policies in California. It would also, through competition, encourage other automo- tive insurers to develop and implement usage-based policies, thereby allowing participating drivers to keep more money in their pockets should they decide to drive less. In the future, after insurance providers’ and motorists’ responses to these modifications to the California Code of Regulations can be gauged, the state could explore providing incentives to entice insurance companies to offer consumers a choice between time-based and mile-based premiums. Net Outcome: A Stronger Economy through Reduced Oil Dependence and Higher Efficiency Taking these actions requires leadership and a long-term vision for the state. Yet the benefits are tangible, significant, and long lasting. While petroleum will remain an important com- ponent of California transportation fuels into the future, using it more efficiently, increasing the avail- ability of alternatives, and reducing the overall need to drive will buffer the state from dependence on unpredictable and unstable foreign sources of energy, expand its economic opportunities, and improve Cal- ifornians’ quality of life. The individual pursuit of each of these compo- nents can seem daunting. However, comprehensively addressing them rather than implementing a piece- meal vision will have a positive impact on the system in which they operate and maximize the benefits to the state. Such a comprehensive approach takes the shape of market-based mechanisms that reward efficiency and diversity as well as investments that benefit the state’s industry and consumers while meeting the overall goals. By committing itself to this longer-term approach, California can create a different atmo- sphere in 2020 than the one it faces today, and create a model that other states and the nation can follow. Rather than supply constraints, price volatility, and petroleum dependence, California can instead create diversity of choice and greater economic growth, and it can demonstrate the benefits of effi- ciency and clean fuels for both greater security and a sustainable environment. While petroleum will remain an important component of California transportation fuels into the future, using it more efficiently, increasing the availability of alternatives, and reducing the overall need to drive will buffer the state from dependence on unpredictable and unstable foreign sources of energy, expand its economic opportunities, and improve Californians’ quality of life.
- 22. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 16 California Can Secure Its Transportation Energy Future Increasing competition for global oil, a strained economy and increasing trade deficit, limited refin- ing capacity, and growing dependence on imported oil that strengthens undesirable regimes around the world all lead to an urgent need for action to secure California’s transportation energy future. Transportation energy security is a goal and responsibility that is typically thought of as one that should be pursued by the federal government. How- ever, with these associated problems, and a national dependence on foreign oil that has climbed from 40 to 60 percent since President Richard Nixon’s 1973 Project Independence was announced,8 this goal and responsibility is falling on other shoulders. In the absence of federal leadership, California has stepped up to define the parameters of such a goal; and it has forty years of precedent to indicate that not only will pursuing this goal be successful, but also that it can lead the rest of the nation to follow its path. TheCECandGovernorSchwarzeneggerhavealready established the urgent need and feasible targets for petroleum reduction to protect the state from energy supply and price risks. Yet there are other reasons for and benefits to reducing petroleum consumption. By significantly increasing its transportation energy effi- ciency and diversifying its transportation fuel sources, California would support or fully achieve its adopted transportation energy security and AB 32 GHG goals, follow precedent established by its successful station- ary energy programs, create a “California advantage” to buffer the state against the negative consequences associated with an excessive reliance on oil, and help grow the economy through new technologies and fuels in which the state can be a worldwide leader. The Current Transportation Energy Outlook: A Need for Action Increased Chinese Demand Helps Drive Up Worldwide Oil Prices Source: UBS, reprinted in The Economist Theworldisconsumingever-greaterquantitiesofoil. Thanks to the United States’ high and increasing con- sumption as well as a steady and significant increase in demand from emerging economies such as China and India, overall demand for transportation energy over the next twenty years is expected to increase by more than 50 percent.9 California is a part of this problem: In 2004 California drivers paid $35 billion to travel 330 billion miles and consumed 18.1 billion gallons of fuel.10 Over the long term, this increase in demand from California and elsewhere, will inflate the price of oil, which will weaken California’s economy. This problem could be significantly compounded if geologists’ global “peak oil” predictions come true. A recent report supported by the U.S. Department of Energy states that peak oil production, which is the sin- gular event indicating the halfway point of the entire planet’s oil production, could come within five years, and almost certainly will come by 2020; after that, produc- tion will inexorably decline.11 This report warns that the world should be spending $1 trillion each year to develop alternative energy sources and avoid peak oil’s associated 8 Energy Information Administration 9 Annual Energy Outlook 2005. Energy Information Administration. DOE/EIA-0383(2005) February 2005. 10 Navai, Reza. State’s Perspective on Land Use, Transportation, Energy/Greenhouse Gas Emissions Connection. Presentation delivered to the CEC IEPR Workshop, September 22, 2006. [Online] http://energy.ca.gov/2007_energypolicy/documents/2006-09-22_workshop/presentations/Nevai.pdf 11 Hirsch, Robert L., et al. Peaking of World Oil Production: Impacts, Mitigation, and Risk Management. February 2005. And Hirsch, Robert L., et al. Eco- nomic Impacts of Liquid Fuel Mitigation Options. National Energy Technology Laboratory. Department of Energy. May 2006.
- 23. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 17 crippling economic effects and resulting chaos.12 Some speculate that the production of light, sweet crude oil, the type most favored by oil refiners, may have already peaked and now must be replaced by more expensive and harder-to-extract sources. The results of this prog- nosis include uncertain and tight levels of worldwide petroleum supplies and further price volatility. Excessive consumption, peak oil, and high and volatile prices are prompting an international race to discover and develop new oil fields. California already imports over 40 percent of its oil,13 which sends a significant portion of its money overseas, expands the state’s trade deficit, weakens its economy, and often helps support regimes such as those in Saudi Arabia, Venezuela, Russia, and Iran14 that are either politically unstable, hostile to the United States, undemocratic, or a combination of the above. Furthermore, nations that aren’t bound by human rights considerations, such as China, are dealing with and investing in unstable and undemocratic countries, such as Sudan. Because of the globalized nature of the oil industry, such a trend to utilize oil from unstable and undemocratic countries magni- fies the United States’ and California’s vulnerability, geopolitical positioning issues, and support of ques- tionable regimes. In fact, an independent task force established by the U.S. Council on Foreign Relations recently came to the stark conclusion that “the lack of sustained attention to energy issues is undercut- ting U.S. foreign policy and national security.”15 Another result of this race to discover and develop new oil fields is the rapid development of nontraditional hydrocarbons, such as oil shale and sands. At first glance this may appear to be a posi- tive result, given that the United States has the world’s largest reserves of oil shale and Canada has close to the world’s largest reserves of oil sands.16 Transportation energy from these sources therefore reduces the flow of money to geopolitically unde- sirable and unstable parts of the world. However, there are real problems with obtaining energy from these nontraditional hydrocarbons. Because these fuels come in the form of semisolid mixtures of bitu- men, clay, sand, and water, or in the form of rocks rich in organic material, tremendous amounts of energy and resources are required to process them and yield petroleum. It takes about 1,200 cubic feet of natural gas and two to four barrels of water to produce one barrel of synthetic oil from two tons of oil sand.17 Furthermore, the extraction of these fuels through surface mining can leave permanent scars on landscapes and vegetation. Oil shale and sands production is also a sig- nificant source of GHG emissions. A recent report from Canada's Office of the Auditor General stated that oil sand operations’ contribution to annual 12 Ibid. 13 CEC. [Online] http://www.energy.ca.gov/gasoline/gasoline_q-and-a.html 14 According to the Central Intelligence Agency’s The World Factbook, Saudi Arabia, Venezuela, Russia, and Iran together have approximately 40 percent of the world’s proven oil reserves. 15 National Security Consequences of U.S. Oil Dependency. Council on Foreign Relations. October12, 2006; p. 9. 16 The United States has 3.3 trillion tons of oil shale deposits, and Canada has between 1.7 and 2.5 trillion barrels of oil reserves in the form of tar sands. 17 Canadian National Energy Board. Canada’s Oil Sands: Opportunities and Challenges to 2015: An Update June 2006. [Online] http://www.neb-one.gc.ca/en- ergy/EnergyReports/EMAOilSandsOpportunitiesChallenges2015_2006/EMAOilSandsOpportunities2015QA2006_e.htm. And Government of Alberta. Depart- ment of Energy. What is Oil Sands? [Online] http://www.energy.gov.ab.ca/100.asp Graph 5: California’s 2002 Total CO2 Emissions from Fossil Fuel Consumption (360 million metric tons) Source: California Department of Transportation SUMMARY/BACKGROUND
- 24. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 18 GHG emissions could double between 2004 and 2015.18 And even without the increased produc- tion of synthetic oil from oil shale and sands, excessive consumption of fossil fuels is the leading source of GHG emissions. In California, transpor- tation fueled almost entirely by petroleum fossil fuels is responsible for approximately 41 percent of the state’s overall GHG emissions, as indicated in Graph 5 (page 17).19 If current growth trends continue, gasoline use and related CO2 emissions in the state will increase approximately 40 percent over the next twenty years.20 Under a business-as-usual scenario, the global warming effects will particularly affect Cali- fornians’ way of life. Global warming is expected to have adverse impacts upon the state’s water sup- plies, the Sierra snowpack, and agriculture and food production. In addition, it is expected to cause sig- nificant increases in pestilence outbreaks, a projected doubling of catastrophic wildfires, and damage to the state’s extensive coastline and ocean ecosys- tems.21 If no major actions are taken to reduce GHGs, the state can also expect higher food, water, energy, insurance, and public health costs. In addition, global warming is expected to create significant environmental damage to the state and could result in the loss of many spe- cies.22 California’s newly enacted AB 32 process calls for significantly reduced GHG emissions from all sectors. A secure transportation energy future can make significant contributions to this process by decreasing transportation’s share of GHG emis- sions. This effort can help protect the economy: The recently released Stern Review report, The Econom- ics of Climate Change, commissioned by the Brit- ish Government, estimates that while the cost of GHG stabilization could be 1 percent of global gross domestic product (GDP) by 2050, the dangers of inaction could be equivalent to 20 percent of global GDP or more.23 Excessive consumption, peak oil, high and vola- tile fuel prices, and GHG emissions are all sources of actual or potential economic destabilization in Cali- fornia. Yet another contributing factor is the demand for finished product (i.e., gasoline and diesel fuel), the production of which requires oil refinement. Cal- ifornia’s lack of spare refining capacity and the gap Graph 6: California’s Refining Capacity Is Maxed Out, Gasoline Imports Make Up for Supply Shortages Source: California Energy Commission 18 2006 Report of the Commissioner of the Environment and Sustainable Development. Office of the Auditor General of Canada. September 28, 2006: Chapter 3, p. 19. 19 CEC. Inventory of California Greenhouse Gas Emissions and Sinks: 1990–2004. Publication # CEC-600-2006-013. 2004. 20 Navai, Reza. State’s Perspective on Land Use, Transportation, Energy/Greenhouse Gas Emissions Connection. California Department of Transporta- tion. Presentation delivered to the CEC IEPR Workshop, September 22, 2006. [Online] http://energy.ca.gov/2007_energypolicy/documents/2006-09- 22_workshop/presentations/Nevai.pdf 21 California Air Resources Board. 22 Ibid. 23 Stern, Sir Nicholas. The Economics of Climate Change. The Stern Review. Cabinet Office – HM Treasury. United Kingdom. October 2006.
- 25. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 19 between California’s refining capacity and demand (see Graph 6), which will expand considerably over the coming decades, adds another degree of insecu- rity to this market. This situation is currently rem- edied by the importation of refined products.24 How- ever, should a California refiner or an out-of-state supplier experience difficulties and be taken offline, California’s economy could suffer significantly. Tank- ers would have to ship gasoline from the half-dozen refiners around the world that can produce the state’s clean-burning gasoline, a process that takes seven to ten days at a minimum.25 Graph 6 illustrates that, under a business-as-usual scenario where no action is taken to reduce California’s oil consumption, this problem is poised to grow worse over time. Under business as usual, the oil industry would need to devote between $8 billion and $18.6 billion worth of petroleum infrastructure to meet the state’s additional transportation fuel demand solely from petroleum sources. The state’s limited refining capacity also illustrates that the business-as-usual pathway does not imply little or no additional costs. Under business as usual, the oil industry would need to devote significant petroleum infrastructure, totaling approximately 323 million barrels of refining capacity, if it wished to meet the state’s estimated transportation fuel demand of 23 billion gallons per year in 2020 solely from petroleum sources. The value of this capacity, either within California or elsewhere, could range between $8 billion and $18.6 billion.26 Therefore, any considerations about whether to move forward with aggressive petroleum reduction policies should, at a minimum, be weighed against this cost. The State’s Stationary Energy Model: Diversify and Consume Efficiently When faced with energy challenges on the stationary side, the state applied a straightforward strategy: Diver- sify and consume efficiently. Today, California is powered by the most diverse electricity fuel sources in the world, including natural gas, coal, hydroelectric, nuclear, and a significant amount of renewables such as wind. This diversification is the result of effective policies and public investment. One policy example, known as a public goods charge (PGC), created a fund of more than $690 mil- lion per year fund that the state uses to invest in energy efficiency measures, renewable energy, and research and development projects that play large roles in the efficient growth and diversification of the state’s energy supplies. This fund specifically targets adding renewable energy sources to the state’s supply. In fact, it provides over $140 million each year to do so. The PGC’s renewable energy target is augmented by the state’s Renewables Portfolio Standard (RPS), which is another example of effective policy. This standard requires that all major utilities in the state generate at least 20 percent of their total electric supply portfolio from renewable sources by 2010. This requirement could result in the procurement of up to an additional 20,000 or more GWh of renew- able energy each year. California’s leadership on energy policy and diversi- fication has helped Californians’ per-capita use of elec- tricity remain more or less constant over the past thirty 24 Currently, California imports more than 10 percent of its gasoline. 25 CEC. Questions and Answers: California Gasoline Price Increases. [Online] http://www.energy.ca.gov/gasoline/gasoline_q-and-a.html 26 State refineries currently refine 730 million barrels/year. Assuming a 52 percent conversion rate for crude oil into gasoline, the state will need 1.05 billion barrels/year of refining capacity to meet its business-as-usual 23 BGGE/year scenario, yielding a refining capacity shortfall of approximately 323 million barrels/year, or 885,000 barrels/day. The National Petrochemical Refiners Association estimates the cost of expanding capacity at existing refineries, and $21,000 per barrel/day to build new refineries, yielding a total required state refinery investment between $8 billion and $18.6 billion. SUMMARY/BACKGROUND
- 26. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 20 years, while use has grown by 50 percent nationally. Accordingly, Californians have saved more than $20 billion in electricity and natural gas costs since the PGC and RPS were established, a number that is predicted to climb an additional $57 billion by 2011. One can predict that an increase in transportation efficiency measures that focus on diversifying California’s transportation energy sources and increase the use of preferred fuels would contribute to this effect. California Adopts Transportation Energy and AB 32 GHG Goals California already has in place goals and legis- lation that can provide the framework for develop- ment of a diverse, efficient, and secure transporta- tion energy model. In 2000, the California legislature passed AB 2076.27 This legislation directed the CEC and the Air Resources Board (ARB) to investigate and develop recommendations for the governor and the Legisla- ture on a California strategy to reduce petroleum dependence. Based on this evaluation, they recom- mended that California adopt a policy to, by 2020, reduce petroleum use by 15 percent and increase use of alternative fuels to 20 percent (compared with 2003 levels). The process of transportation energy analysis and review related to these goals contin- ues through Integrated Energy Policy Reports (IEPRs) released every other year by the CEC. In Governor Schwarzenegger’s response to the 2005 IEPR, he expressed his agreement that the state “should improve vehicle efficiency and diversify fuels.” In particular, he asserted that the state should “adopt a goal of increasing the use of nonpetroleum fuels to 20 percent of on-road fuel consumption by 2020 and 30 percent by 2030 based on identified strategies that are achievable and cost-beneficial” and expressed his particular support for state fleet leadership on this issue and programs that inform and educate consumers on vehicular efficiency techniques. The California legislature also passed and the governor signed the Global Warming Solutions Act28 in early fall 2006. This act establishes a first-in-the- world comprehensive program of regulatory and mar- ket mechanisms to achieve real, quantifiable, cost- effective reductions of statewide GHG emissions. It codifies the governor’s previously expressed goal by requiring the state’s global warming emissions to be reduced to 1990 levels by 2020, which represents a 25 percent reduction below business as usual.29 The Act can apply to a wide range of GHG sources and will most likely help drive the use of innovative, low-carbon methods of energy production such as renewable approaches. One thing is certain: If the state is to meet this ambitious AB 32 GHG goal and the IEPR goals, transportation energy diversity and efficiency will have to play a significant role. The State Can Once Again Lead the Nation More than forty years of leadership and prec- edent indicate California not only can succeed in securing its transportation energy future without waiting for federal action, but also can reap mul- tiple benefits by doing so and prompt the rest of the nation to follow its lead. Because of California’s severe environmental problems and historical actions to address them, the state was granted a waiver under the 1970 Clean Air Act that allows it to pursue clean air policies that are more aggressive than the federal government’s. Since then, California has repeatedly passed auto- motive standards that exceed federal standards and set the model for national action. In the 1960s, California’s actions to control auto- motive pollution prompted the federal government not only to set automotive emission standards, but also to model them after the state’s. This demonstra- tion of leadership was repeated in the early 1990s and again in the late 1990s when, frustrated by a 27 AB 2076, Shelley, Chapter 936, Statutes of 2000 28 AB 32, Nunez and Pavley, Chapter 488, Statutes of 2006 29 California Air Resources Board. AB 32 Fact Sheet. [Online] http://www.arb.ca.gov/cc/factsheets/ab32factsheet.pdf
- 27. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 21 lack of federal action, a handful of northeastern states adopted California’s Low Emission Vehicle 1 and 2 programs, an action that prompted the cre- ation of the National Low Emission Vehicle program and eventually the stringent Tier 2 national program, which significantly reduced vehicular emissions and air pollution nationwide. One of California’s influential acts regarding automotive standards was passed in 2002. Dubbed the Vehicle Global Warming Law,30 this legislation places caps on average fleet vehicular GHG emis- sions. While the regulation is currently facing legal challenge, California’s leadership was once again demonstrated by the fact that ten other states, rep- resenting one-third of the U.S. population, adopted this program. If previous experience serves as an indicator, one might predict that it’s only a matter of time until the federal government implements a similar national program. Other examples of independent California action and leadership are plentiful. In the late 1980s, Gov- ernor George Deukmejian signed the California Clean Air Act and the ARB approved the reformu- lated gasoline program, paving the way for federal adoption of the Clean Air Act Amendments and a national reformulated gasoline program in the early 1990s. California also leads the nation on appliance efficiency, building efficiency, coastal protection standards, and, as previously mentioned, stationary energy policy. Today, the state is establishing partnerships around the country and the world in order to meet its AB 32 GHG goals. In October 2006, Governor Schwarzenegger announced that he will work with New York and other eastern states to create markets to cut GHG emissions. In August 2006, the gover- nor signed an agreement with British Prime Minister Tony Blair to collaborate on technologies, scientific development, and the creation of market-based mechanisms as well as to engage rapidly grow- ing countries such as China and India in combating global warming. Clearly, Governor Schwarzenegger is following California’s tradition of environmental and energy leadership. Solutions Are Ready to Go, Can Support a “California Advantage” With such a track record, California is ideally sit- uated to aggressively pursue a comprehensive trans- portation energy policy, to reap the “early adopter” rewards commonly associated with first-mover sta- tus, and to shape a national transportation energy policy in its vision. Fortunately, California doesn’t have to wait for technological solutions or “silver bullets” to be discovered before it moves forward with its transportation energy security goals. The solutions that can make a difference are here today and ready to go, and their increased use can inocu- late and grow California’s economy while buffering the state against the negative consequences associ- ated with an excessive reliance on oil, thereby estab- lishing a “California advantage.” The solutions that can make a difference in the 2020 time frame range from conventional vehicu- lar technologies that can be improved with rela- tively minor and inexpensive modifications to more advanced solutions such as the following: Hybrid electric systems that combine conventional fuel engines with electric motors for superior efficiency; renewable fuels that are produced from organic mat- ter like crops and waste material; natural gas that comes from North America and reduces GHG emis- sions by over 20 percent compared with gasoline; smart growth development that builds more efficient ways to live; advanced transit technologies like Bus Rapid Transit that creates stylish “rails on wheels”; and many others. Furthermore, greater use of these technologies can assist in the creation of a “California advantage” by buffering the state against the negative conse- 30 AB 1493 Pavley, Chapter 200, Statutes of 2002 31 Peak, Matt, et al. California’s Clean Vehicle Industry. CALSTART, Inc. 2004. [Online] http://www.calstart.org/info/publications/Californias_clean_ve- hicle_industry/Californias_Clean_Vehicle_Industry.php SUMMARY/BACKGROUND
- 28. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 22 Picture 2: 124 Clean Car Technology Cluster Manufacturers, Developers, and Supporting Institutions Identified in California Region Mfr/ Dist Supp Inst Total Greater Los Angeles 57 12 69 San Francisco Bay Area 25 6 31 Sacramento 4 2 6 San Diego 8 1 9 All other areas 7 2 9 Totals 101 23 124 San Francisco Bay Area Greater Los Angeles Manufacturers & Developers Supporting Institutions
- 29. CALIFORNIAACTIONPLAN:CalSTEPActionPlanSummary 23 quences associated with an excessive reliance on one type of fuel, such as oil, while growing the economy. A 2004 CALSTART study found that California has key competitive advantages in clean vehicle technol- ogies.31 Specifically, the report found that California is already an acknowledged world leader in advanced technologies, electronics, software, and engineering and design. These skills and demonstrated strategic strengths align closely with the skill sets needed to create the new technologies and products required for more efficient and AFVs. The CALSTART study, titled California’s Clean Vehicle Industry, surveyed over 100 clean vehicle technology companies and supporting institutions that are currently doing business in the state. The location of these companies, termed the Clean Car Technology Cluster, is illustrated in Picture 2. When asked to assess the effect on their business of implementing more efficient and/or alternative fuel technologies in vehicles, the companies surveyed overwhelmingly responded that such a requirement would benefit them by increasing both job growth and investment. The study also highlights the market poten- tial that comes with being a recognized leader in a growing industry. For example, on automotive emission standards, California’s LEV II automotive emission standards (adopted in 1998) served as the model for national standards. LEV II spurred innova- tion that resulted in an estimated $550 million in additional revenues to the California air pollution control industry from 1999 to 2002, equaling nearly $140 million per year.32 Accordingly, the study cites a potential $20 billion automotive technology market that would be made possible by aggressively pursuing transportation energy security measures. It also illustrates further growth opportunities prompted by developing coun- tries’ increasing interest and involvement in solving their petroleum dependence problems. For example, China has a rapidly growing car market that will equal current U.S. sales by 2015, and the country already has policies in place to promote clean and efficient vehicle technologies. With global trends driving new technologies to market, California’s Clean Car Technology Cluster is well positioned to add high-quality jobs and invest- ments to California’s economy. All that’s needed to make this happen are appropriate state leadership, smart policies, and targeted investment. 32 Ferrier, Grant, and Killion, Mariko. The Economic Contribution of the California Air Pollution Control Industry. Environmental Business International, Inc. October 2004; p. 36. SUMMARY/BACKGROUND
- 33. •ApplyingSm art G r o w t h a n d A d v a n c e d T r a n s i t • D i v e r s if y ing FuelSupply• Improv in g V e h i c u l a r E f f i c i e n c y • E d u c a t i n g t h e P ublic PrimaryActions DETAILEDDESCRIPTIONSANDSUPPORTINGDATA PRIMARY ACTIONS
- 34. CALIFORNIAACTIONPLAN:PrimaryActions 28 Diversifying the State’s Fuel Supply = 2.9 BGGE CalSTEP’s actions to diversify California’s fuel supply would reduce annual petroleum consumption by 2.9 BGGE. Working through its deliberative process— in which progress was measured in terms of economic, geopolitical, and environmental costs and benefits—CalSTEP has identified three high-priority actions that it urges the state to immediately take to begin moving towards a secure and prosperous transportation energy future. 1 Codify Governor Arnold Schwarzenegger’s fuel diversity goal by implementing a fuel- neutral, minimum-pooled Alternative Fuels Portfolio Standard (AFPS) of at least 10 percent by 2012 and at least 20 percent by 2020 that will increase the availability of and access to a diverse array of alternative fuel stations. 2 In support of the directives outlined in Governor Schwarzenegger’s Executive Order S-17-06, which focuses on developing market-based solutions to global warming, implement an Energy Security Tax Relief and Realignment (ESTRR) program consisting of a Foreign Oil Security fee coupled with a tax rebate for all California taxpayers. This would use market mechanisms and price signals to significantly increase the efficient use of petroleum and help protect efficient-transportation capital investments. 3 Initiate a Smart Communities program that encourages energy-efficient and climate-friendly land-use policies and practices by providing new state transportation funding to local governments to implement regional blueprints that reduce the need to drive. Alternative Fuels Portfolio Standard Today, California motorists are forced to deal with what can only be described as a “monofuel” culture dominated by gasoline and diesel fuels. In 2004 there were 9,630 gasoline refueling stations in
- 35. CALIFORNIAACTIONPLAN:PrimaryActions 29 California.33 By comparison, there were only about 365 compressed natural gas (CNG) stations (about 140 of them publicly accessible), 340 electric vehicle charging stations, 235 liquefied petroleum gas (LPG) stations, 40 liquefied natural gas (LNG) stations, 25 publicly accessible biodiesel stations (at blends of 20 percent or higher), and one publicly accessible E85 ethanol refueling station. In other states and nations, as the following examples illustrate, motorists have options when they pull up to the pump: ·Targeted state-level programs that focus on expanding agricultural development and renewable fuel production have led Minnesota to take the lead and jump-start its fuel diversity by implementing over 200 E85 stations; Illinois has more than 100. ·Prompted by the two oil shocks of the 1970s, Brazil now blends gasoline with 25 percent ethanol, and pure ethanol stations are as common as gasoline stations. Nearly 80 percent of new car sales in Brazil are “flexible fuel” capable, which allows these vehicles to run on any combination of gasoline and ethanol. Motorists can choose for themselves, based on price and preference, which fuel to buy on any given day. Ethanol now makes up over 15 percent of transportation fuel consumption and is partially responsible for the country’s transportation energy self- sufficiency in 2006.34 ·Sweden not only benefits from the importation of Brazilian ethanol, but has also created a dedicated biomethane infrastructure. Renewable fuels such as biomethane and ethanol are expected to be offered at 2,400 of Sweden’s 4,000 gas stations by 2010. The popularity of these fuels and the vehicles that run on them, combined with a law that requires gas stations that sell more than 3,000 cubic meters of gasoline or diesel fuel per year to also provide a renewable fuel, is part of the country’s strategy to break its dependence on fossil fuels by 2020. ·Iceland has set out to become the first nation in the world to power its economy entirely with hydrogen. In 1999, the country established Icelandic New Energy, which is a cooperative involving the Icelandic government, universities, research institutions, business leaders, and the companies Shell, DaimlerChrysler, and Norsk Hydro. The cooperative’s goal is to power the country's transportation system and fishing fleet entirely with hydrogen, thereby saving the country nearly two-thirds of the $200 million it spends each year on imported fossil fuels, attracting new foreign investment, and developing the capacity to export hydrogen. ·The global natural gas vehicle (NGV) population increased by 65 percent over the past three years to 4.6 million CNG vehicles,35 while the global natural gas station population increased by 40 percent. In recent years, the NGV population in Argentina, Brazil, and Pakistan has grown by 45, 57, and 283 percent, respectively. India has the largest natural gas bus fleet in the world, with more than 10,000 buses in service in New Delhi. In Italy, about a quarter of a million vehicles are running on CNG. In China, Beijing has more than 2,400 natural gas buses in service.36 German registrations of CNG passenger cars in October 33 Argyropoulos, Paul N., et al. Analysis of U.S. Retail Market: Consumer Accessibility to On-Highway Diesel Fuel. Hart Downstream Energy Services. March 2005; p. 14. 34 Statement by David G. Victor of Stanford University, as quoted in: Romero, Simon. “Much Talk, Mostly Low Key, About Energy Independence”. The New York Times. February 1, 2006. 35 International Association for Natural Gas Vehicles. September 26, 2006. 36 Saw, Guan. Key Drivers for Natural Gas Powered Buses in China. International Association for Natural Gas Vehicles. 7 December 2005. [Online] http:// www.ngvglobal.com/index.php?option=com_content&task=view&lang=en&id=455&Itemid=2 PRIMARY ACTIONS
- 36. CALIFORNIAACTIONPLAN:PrimaryActions 30 2006 climbed more than 300 percent over the October 2005 figure, and are up 47 percent year-over-year. There are now more than 50,000 NGVs on the road in Germany. Table 1 lists some of the countries that experienced notable NGV growth in recent years. With the implementation of thoughtful, well- crafted policies, California can also diversify its fuel supply and provide motorists with options when they refuel. The primary action in this category that CalSTEP identified as able to bring California up to or beyond par with the rest of the nation is a pooled AFPS. AFPS Follows Successful AB 32 Precedent, Codifies Governor’s Alternative Fuel Goal In June 2005, Governor Schwarzenegger estab- lished state-level GHG emissions reduction goals that would reduce emissions to 2000 levels by 2010, to 1990 levels by 2020, and to 80 percent below 1990 levels by 2050. In response, the legislature proposed AB 32 in 2006. The bill, which came to be known as the Global Warming Solutions Act, codi- fied the governor’s goals, established the framework for market-based GHG reduction strategies, and set in motion the process for ensuring that these goals become reality. CalSTEP believes that the legisla- ture and the governor should take the same action regarding transportation fuel diversification. In his response to the 2005 IEPR, Governor Schwar- zenegger asserted that the state should “adopt a goal of increasing the use of nonpetroleum fuels to 20 percent of on-road fuel consumption by 2020 and 30 percent by 2030 based on identified strategies that are achievable and cost-beneficial.” CalSTEP applauds the governor’s establishment and endorsement of this goal and believes that the goal should be codified, as was done with AB 32, through an AFPS that would require refiners to provide 10 and 20 percent of the state’s transportation energy as ARB-approved alter- native fuels by 2012 and 2020, respectively. Table 1: Notable International Natural Gas Vehicle Growth Country NGVs 2003 NGVs 2006 Stations 2003 Stations 2006 Argentina 1,000,000 1,457,118 1,000 1452 Brazil 550,000 1,011,206 565 1138 Pakistan 350,000 700,000 200 766 India 137,000 222,222 116 192 China 69,300 97,200 270 355 Egypt 44,064 62,702 75 91 Germany 15,000 50,000 337 650 Bangladesh 13,000 41,314 16 122 GlobalTotal 2,814,438 4,642,720 6,455 9,005 Source: Natural Gas Vehicles for America, Trägerkreises Erdgasfahrzeuge
- 37. CALIFORNIAACTIONPLAN:PrimaryActions 31 Other States Are Moving Forward; California Should Too In addition to the federal government’s recently enacted renewable fuel standards,37 several states around the nation have adopted their own aggres- sive yet feasible renewable fuel standards, which are similar to an AFPS but more limited, for they require the blending of renewable fuels like ethanol and biodiesel with petroleum fuel. These standards usually dictate the level of renewable fuel that a state needs to blend into gasoline and/or petroleum diesel. Table 2 illustrates the level of activity in other states. Table 2: State Renewable and Other Fuels Standards State Level Date of Enactment Minnesota E10 E20 Current 2013 Hawaii Alternate fuels: 20% highway fuel demand by 2020 2006 Illinois 10% of total sales 15% of total sales 2008 2012 Missouri E10 2008 Washington Ethanol: 2% of total sales Biodiesel: 2–5% of total sales 2008, or when state demonstrates sufficient in-state production Colorado E10 E20 2009 2013 Iowa 10% of total sales 25% of total sales 2009 2020 New Mexico E10 B2 2009 Kansas E10 B2 2010 Louisiana E2 B2 After sufficient in-state monthly production volumes are met Montana E10 When state achieves minimum production level Source: Green Car Congress CalSTEP believes that California should go beyond a simple directive to blend renewable fuels with petroleum fuels and adopt a broader and more flexi- ble AFPS that could include other nonpetroleum ARB- approved alternative fuels and blends such as natural gas and propane. Such a policy would conform with the governor’s broad alternative fuel goals, while providing flexibility for industry to choose the most cost-effective and expedient solutions that meet the requirements. Furthermore, an AFPS allows time for resolving air pollution uncertainties associated with low-blend biofuels (progress is currently being made, PRIMARY ACTIONS
- 38. CALIFORNIAACTIONPLAN:PrimaryActions 32 but allows the ambitious goal to be met regardless of whether these uncertainties are resolved. The use of a broader AFPS isn’t without precedent. Hawaii enacted an AFPS38 requiring that 10 percent of highway fuel demand be met by alternate fuels by 2010, 15 percent by 2015, and 20 percent by 2020. In September 2006, Connecticut Governor M. Jodi Rell unveiled an energy program for the state that, among other elements, establishes a 20 percent minimum alternative fuels component for all commercial trans- portation fuels sold in the state by 2020. California’s adoption of this policy would align the state with these other transportation energy leaders while send- ing a clear message that the state is serious about meeting the governor’s targets. Implementing an AFPS The implementation of an AFPS would be modeled on the national structure to implement a renewable fuel standard. The AFPS approach would require any party producing gasoline for consumption in Cali- fornia—including refiners, refinery terminals, and importers—to be subject to a 10- and 20-percent alternative fuel volume obligation in 2012 and 2020, respectively. The 10 and 20 percent figures would be applied to on-road gasoline and diesel fuel con- sumption only. Small refiners and small refineries, as defined by the Clean Air Act Section 211(o)(a)(9) and Section 1501(a) of the Energy Policy Act of 2005, would be exempt from meeting the 2012 alternative fuel requirements. To facilitate the practicality of this requirement, the CEC would design and implement a credit trad- ing program that allows obligated parties to com- ply with the AFPS standard through the purchase of tradable credits if they cannot or do not wish to blend or sell alternative fuels. Such a system would also allow independent providers and/or obligated parties to sell surplus credits accumulated through overcompliance with the standard. Any alternative fuel provider would be able to generate credits, but the CEC would establish the conditions under which the credits could be generated and how the credits could be transferred from one party to another. The CEC would also be responsible for estab- lishing compliance and enforcement provisions, such as for facility registration, record keeping and reporting requirements, program enforcement, and various fuel tracking mechanisms. These provisions would enable the credit trading program to function properly and would ensure an adequate foundation for enforcement. Potential Ways of Meeting Requirements While the AFPS is inherently flexible and could be met by using any methods that importing com- panies, refineries, and refinery terminals chose, the following two hypothetical examples illustrate the feasibility of meeting the overall requirements and approaches that could be taken: 38 Act 240, SLH2006
- 39. CALIFORNIAACTIONPLAN:PrimaryActions 33 Hypothetical Examples for Meeting the AFPS 2012 and 2020 Requirements 10 Percent by 2012 (0.8 BGGE) 20 Percent by 2020 (2.9 BGGE) Action Petroleum Reduction (BGGE) Action Petroleum Reduction (BGGE) E10 statewide 0.4 E10 statewide 0.5 B5 statewide 0.17 B20 in all diesel vehicles 0.9 Natural gas vehicles 3% of medium- and heavy- 0.1 Natural gas vehicles 11% of medium- and heavy- 0.9 300,000 vehicles running on E85 0.12 2.5 million light-duty vehicles running on E85 1.0 Summary: Alternative Fuels Portfolio Standard Proposed Action Implement a pooled alternative fuels standard of 10 percent by 2012 and 20 percent by 2020 Objectives 1. Set a firm target and commitment by the state to implement alternative fuels. 2. Utilize a flexible policy mechanism that is superior to a renewable fuel standard to achieve this goal. 3. Create a credit trading program to facilitate this process. Outcome in 2020 Alternative fuels provide 20 percent of all transportation fuel in California Projected Annual Petroleum and GHG Reductions 2.9 BGGE39 of petroleum and 15 million tons of GHGs in 202040 Estimated Annual Cost Costs to the state government are minimal Implementation Plan or Proposed Authority CEC Responsible/Affected Parties Importing companies, refineries, and refinery terminals Proper Avenue of Enactment Legislation PRIMARY ACTIONS 39 This number can vary based on the strategies chosen to meet the requirements; 2.9 BGGE is based on the aforementioned hypothetical strategy. 40 15 million tons of GHG emissions reduced is based on the aforementioned hypothetical strategy and assumes a 50-50 mix of corn-based and cellulosic ethanol in 2020. GHG reduction numbers taken from: Farrell, Alexander E. et al. “Ethanol Can Contribute to Energy and Environmental Goals.” Science Magazine. January 27, 2006.
- 40. CALIFORNIAACTIONPLAN:PrimaryActions 34 Market-Based Energy Security Tax Relief and Realignment Program Improving Vehicular Efficiency = 2.9 BGGE CalSTEP’s actions to improve vehicular efficiency would reduce annual petroleum consumption by 2.9 BGGE. While California has an EPA waiver to pursue envi- ronmental standards that are more stringent than the federal government’s, the waiver doesn’t apply to vehicular fuel economy standards. Consequently, Cali- fornia is subjected to the same federal vehicular fuel economy standards as other states, standards that are set by the National Highway Traffic Safety Adminis- tration (NHTSA). Unfortunately, the main federal pol- icy tools, known as Corporate Aver- age Fuel Economy (CAFE) standards, have yielded little real-world fuel economy improvement for light-duty passenger cars over the past twenty years: In 1987, the year when over- all fuel economy for cars and light trucks in the U.S. market was at its highest, these vehicles averaged 22.1 mpg. The average in 2004 was 20.8 mpg. As Graph 7 indicates, CAFE standards have remained the same since 1985, and even declined for a brief period. Recently, action was taken to improve light-duty truck fuel econ- omy standards through a process administered by the NHTSA. Through this process, the standard for light-duty trucks (those weighing less than 8,500 pounds) will increase from 20.7 to 22.5 mpg in 2008, to 23.1 mpg in 2009, and to 23.5 mpg in 2010, after which the standards move to an individualized system based on vehicular footprint size.41 Still, it is clear that significant progress on vehicular efficiency—progress that goes beyond the NHTSA’s standards and that meaningfully assists the state in achieving its transportation energy and GHG goals—won’t be achieved unless there is a significant increase in the appearance of efficient technologies in vehicles. This could be prompted by a decrease in some of these technologies’ costs and greater public demand for efficient vehicles. CalSTEP has identified smart primary and support- ing actions that, if fully implemented, would create these conditions and spark the efficient use of petro- leum in new and existing vehicles while helping to protect investments in efficient transportation tech- nologies. CalSTEP’s policies and programs would also allowforthepreservationofvehicularsafety,consumer choice, and flexible market-based responses. Pursuing such mechanisms is a good way to drive these goals Source: National Highway Traffic Safety Administration Graph 7: CAFE Standards for Passenger Cars Have Not Changed Since 1985 41 Footprint is listed as square feet and is calculated by multiplying track width (the distance between the centerline of the tires) and wheel base (the distance between the centers of the axles).
- 41. CALIFORNIAACTIONPLAN:PrimaryActions 35 in the absence of federal efficiency requirements. The primary action in this category is the implementation of a market-based ESTRR program. Promoting Efficient Fuel Use Through ESTRR Unstable gas prices are a significant detriment to California’s economy, in terms of both their direct cost and the uncertainty that variable prices have on investments in substitutes and efficiency. Over the past eight years, gasoline prices in California have fluctu- ated between an average of $1.16 per gallon in 1998 and $2.86 per gallon so far in 2006.42 More recently, gas prices swung between an average of $2.44 in Feb- ruary 2006 to an average of $3.33 per gallon in May 2006 (and significantly higher in certain areas) then back down again to an average of $2.43 by the end of October 2006.43 Under this scenario, where gaso- line prices can’t be predicted a on day-to-day basis much less year-to-year, individuals and companies are unsure whether to develop or adopt advanced and efficient transportation technologies: They don’t know what the payback will be, or whether gasoline prices will collapse altogether, leaving them high and dry, as happened in the 1980s. Consequently, efforts to introduce costly new and efficient transportation technologies have soared during times of higher oil prices, then been scrapped as oil producers increased supply to drive down prices. To a lesser degree, this effect is already taking place as fuel prices retreat from their summer 2006 highs. According to a Cars.com Consumer Search Index report, searches for the most fuel-efficient cars declined the most in fall 2006, while searches for luxury SUVs with lower fuel economy increased significantly.44 This effect is confirmed by the fact that the light-duty truck category, which includes less-economical pickups, SUVs, and vans, surged by 14.8 percent while sales of more-economical cars fell by 2.9 percent45 in October 2006 after gasoline prices fell by 17 percent in September.46 This surge was even greater at some companies, with General Motors truck sales up 32.9 percent.47 Realized and potential drops in oil prices signifi- cantly reduce the private sector’s investment in alter- native fuels and efficient technologies, as well as their implementation.Whileannual1-to1.5-percentvehic- ular efficiency gains from technology can be used to improve fuel economy, performance, or a combination of both, public demand for larger and higher-perfor- mance vehicles is directing much of these efficiency gains toward technologies that enable manufactur- ers to provide these types of vehicles. CalSTEP believes that petroleum prices stabilized above $3 per gallon would help raise demand for more economical vehi- cles and therefore prompt automobile manufacturers to direct some or all of their annual efficiency gains into fuel economy–enhancing technologies, while protecting manufacturers’ and motorists’ investments in these technologies. Accordingly, CalSTEP recommends that the state explore and implement an ESTRR program to help ensure that investments in advanced and efficient vehicular technologies and alternative fuels aren’t abandoned. Under ESTRR, California would imple- ment a Foreign Oil Security fee should retail prices of petroleum fuels drop below an initial price floor: the average price of fuel over the six months prior to implementation or $2 per gallon, whichever is greater. This price floor would increase by 1 cent per month for ten years to a maximum level of $1.20 per gallon above the initial price floor, while each step of the way returning all collected funds to all California taxpayers through a tax rebate or credit, which tax- payers could then use as they wish. 42 CEC. Historical Yearly Average California Gasoline Price per Gallon 1970 to 2006. [Online] http://www.energy.ca.gov/gasoline/statistics/gasoline_cpi_ adjusted.html 43 Ibid., and CEC. California Average Weekly Retail Gasoline Prices. [Online] http://www.energy.ca.gov/gasoline/retail_gasoline_prices.html 44 Green Car Congress. Online Searches for Fuel-Efficient Vehicles Decrease with Price of Gas. October 9, 2006. [Online] http://www.greencarcongress. com/2006/10/online_searches.html#more 45 Merx, Katie, and Webster, Sarah A. “Lower gas prices spur rebound in truck sales.” Detroit Free Press. November 2, 2006. 46 Hagenbaugh, Barbara. “Demand for Gasoline Surges As Prices Take a Dive.” USA Today. October 19, 2006. 47 Ibid. PRIMARY ACTIONS
- 42. CALIFORNIAACTIONPLAN:PrimaryActions 36 The Foreign Oil Security fee could be imple- mented at the retail level by assessing an incre- mental cost per gallon of petroleum fuels, or at the wholesale level by assessing an incremental cost per barrel of oil on those who sell petroleum fuels in the state. This could be done by setting the price floor at the average oil price over the six months prior to implementation and then raising it by 40 cents per barrel each month for ten years. Either way, the price that motorists see at the pump would be approximately the same. The size of the ESTRR rebates would be propor- tional to the size of the fee and would come in the form of individual tax rebates, state income tax cred- its, or comparable measures. The Foreign Oil Security fee would not apply to ARB-approved alternative fuels, but motorists who use alternative fuels would receive the same tax rebate. Table 3 illustrates how the revenue collected from a Foreign Oil Security fee would match the revenue returned to motorists, should the price of petroleum drop below the point that would trigger its imposition. Table 3: All California Taxpayers Receive Rebates Under ESTRR …Then the Foreign Oil Security Fee Equals: …And theTax Rebate Equals: Retail Cost of Petroleum Fuel $ per Gallon Total Revenue ($B) $ per Person48 TotalTax Relief ($B) $2.80/gallon $0.40 6.16 $201 6.16 $2.40/gallon $0.80 12.32 $402 12.32 $2.00/gallon $1.20 18.48 $603 18.48 Fully Phased-in Realignment Impacts of ESTRR in 2020 Source: California Energy Commission, U.S. Census Bureau While recognizing that price signals are the best way to change consumer behavior, CalSTEP also rec- ognizes that increased petroleum prices, even when combined with tax cuts or rebates, are often not con- sidered politically feasible. However, there appears to be strong support for this concept within the business and environmental communities. CalSTEP therefore believes that a strong bipartisan coalition could be organized to pursue the ESTRR concept. CalSTEP proposes this action take place in con- junction with the directives outlined in Governor Schwarzenegger’s Executive Order S-17-06, which focuses on developing market-based solutions to global warming. Among other things, it calls for the creation of a Market Advisory Committee to make recommendations to the ARB on or before June 30, 2007, on the design of a market-based compliance program to support the state’s AB 32 Global Warm- ing Solutions Act activities. Foreign Security Fee Means More Freedom from the Middle East and Money in Taxpayers’ Pockets While the stable investment climate created by ESTRR would significantly benefit California’s Clean Car Technology Cluster and provide associated eco- nomic growth, all motorists would be better off through the program. The ESTRR program will significantly advance the use of efficient vehicular technologies in California, making these technologies more common in all types of vehicles, without compromising consumer choice or safety. The potential imposition of a Foreign Oil Security fee if retail gas prices fall below the price floor in 2020 means that automakers would have sufficient time to plan their products to gradually incorporate more effi- cient technologies across all classes, for automakers would have certainty that prices would not be manip- ulated by OPEC or others to collapse the market for alternative fuels or efficient vehicles. It can be expected that such a policy, which provides an ample ten-year planning horizon, would lead to increases in vehicular 48 Total tax relief divided by the population greater than 18 years old in California in 2020 (30.65 million).
- 43. CALIFORNIAACTIONPLAN:PrimaryActions 37 fuel economy as well as more efficient fuel use in exist- ing vehicles, thereby yielding a savings of 2.9 BGGE per year beginning in 2020 if implemented by 2010. The tax rebates ensure that motorists keep more money in their pockets to save or spend on leisure goods or other expenses. Under the proposed sce- nario, if drivers maintain their current level of driving, the tax rebate would ensure that motorists’ average aggregate out-of-pocket expenses for transportation fuel would remain the same. And drivers who choose to drive more efficient vehicles, drive less, or use alternative means of transportation would have the opportunity to save money and add to their income. The tax rebates also mean that ESTRR is revenue neutral, deflating the argument that it is a proposed tax increase. With every dollar that the Foreign Oil Security fee generates, an equal amount is refunded to all California taxpayers. This rebate can be pro- vided in different ways, from a simple check mailed to all taxpayers to a tax form credit. If the rebate is linked to the payroll tax, it could serve as a catalyst for job growth. Cutting the payroll tax is equitable to both rich and poor and, unlike income taxes, payroll taxes cannot be avoided. Also, cutting payroll taxes can be one of the most efficient ways the state can increase labor demand, employment, and overall eco- nomic growth. While payroll taxes are levied at the federal level, the state can take action by providing state tax rebates to both employers and employees. If the notion of a price floor makes the challenges of implementing either of the two proposed options insurmountable, the state could simply implement the Foreign Oil Security fee on petroleum fuels or oil without setting a price floor, but still refund the collected fees through tax rebates. While potentially easier to implement, this option might not guaran- tee the benefits that a predictable price floor would, for prices could collapse below the levels that would significantly spur investment in and adoption of technologies that enhance fuel economy. Still, it is an option worthy of consideration should the other prove infeasible. California Is Well Positioned to Pursue ESTRR California is well positioned to implement a Foreign Oil Security fee under the ESTRR program, should the need arise. The state’s currently imposed gasoline tax level is among the lowest in the nation. According to the Tax Foundation, at 18 cents per gallon, California’s 2005 per-capita fuel tax collec- tion is ranked forty-sixth out of fifty states, and is a long way away from the 27 cents imposed by the per-capita leader, Montana,49 and the 32.9 cents by the absolute leader, Wisconsin.50 California’s 18-cent per gallon tax is on top of federal and sales taxes, which bring the total amount of gasoline taxes that Californians pay to approximately 54 cents per gallon.51 This compares with $4.24 per gallon in Britain and $3.99 per gallon in Germany—two countries with significantly greater average vehicle efficiency and more practical pub- lic transport systems. Such a situation appears to be quite a paradox for a state engaged in a forty-year effort to find alternatives to oil, and with a history of repeatedly increasing taxes on other social ills such as cigarettes. 49 The Tax Foundation. State Motor Fuel Tax Collections By State, Fiscal Year 2005. 2005. [Online] http://www.taxfoundation.org/taxdata/show/241.html 50 The Tax Foundation. State Sales, Gasoline, Cigarette, and Alcohol Tax Rates by State. December 31, 2005. [Online] http://www.taxfoundation.org/tax- data/show/245.html 51 CEC data as of November 13, 2006. [Online] http://www.energy.ca.gov/gasoline/margins/index.html PRIMARY ACTIONS
- 44. CALIFORNIAACTIONPLAN:PrimaryActions 38 Bipartisan and Public Support for the ESTRR GHG and Petroleum Security Approach In October 2006, the Council on Foreign Rela- tions issued a report titled National Security Con- sequences of U.S. Oil Dependency. The organiza- tion is a nonpartisan resource for information and analysis composed of past and present world lead- ers from political, corporate, and academic arenas. Its board of directors includes Martin S. Feldstein, Richard Holbrooke, and Colin Powell, among others. The independent task force that produced the report was chaired by former Central Intelligence Agency Director John Deutch and former U.S. Secretary of Defense James R. Schlesinger. The report focuses pri- marily on domestic energy policy as a high-potential leverage point to prevent the further undercutting of U.S. foreign policy and national security. The report states the unanimity of the task force “in concluding that stronger incentives are needed to encourage investment in energy efficiency and fuel switching” in the United States.52 The report also states the potential of higher petroleum fuel prices, achieved through programs like ESTRR, in achieving this goal. These would “encourage less driving as well as increased efforts by automakers to develop and market more fuel-efficient vehicles.”53 An example scenario is cited where fuel prices average $1 per gallon higher than unmodified retailed costs. While this scenario is different than the ESTRR proposal in that it merely increases the retail cost rather than setting a price floor and providing a tax rebate, it still predicts that such a scenario could “reduce the use of gasoline by between 3 percent and 6 percent” in the near term and eventually by about 16 percent overall.54 Alan Greenspan, former chairman of the Federal Reserve, has also advocated for an increase in gaso- line taxes on behalf of national security. In Septem- ber 2006, he responded “with atypical clarity” to a question about gasoline taxes by saying that such taxes are “the way to get consumption down. It’s a national security issue.”55 In lobbying for a sustained level of gasoline prices as a way to promote efficient vehicle technologies and reduce gasoline consump- tion, Greenspan joins other notable traditionally antitax economists such as N. Gregory Mankiw, the Harvard economist who served as chairman of Presi- dent Bush’s Council of Economic Advisors; Andrew A. Samwick, chief economist on the Council of Eco- nomic Advisors from July 2003 to June 2004; and the aforementioned Martin S. Feldstein.56 Fortunately, research indicates that the public is ready for a politician or political party to fulfill these notables’ wishes and step forward with a compre- hensive measure like ESTRR to increase transporta- tion energy security. In a February 28, 2006, New York Times/CBS poll, 55 percent of respondents sup- ported paying higher gasoline prices if the increase was linked to a reduction of foreign oil dependence, while 37 percent were opposed. Even more respon- dents supported paying higher gas prices if it helped reduce global warming, with 59 percent in favor and 34 percent opposed. The poll revealed that the key to exercising such leadership comes down to how the program is framed. If the measures were linked to energy security and climate change, they garnered significant support. If the measures were described simply as a gasoline tax, only 12 percent of respon- dents supported the action and 85 percent opposed it. A February 2006 Resource Media poll confirmed these results, indicating that 58 percent of Califor- nians support a gasoline tax increase to reduce oil consumption and promote alternative fuels. 52 Council on Foreign Relations. National Security Consequences of U.S. Oil Dependency. October 12, 2006, p. 36. 53 Ibid. 54 Ibid. 55 Gross, Daniel. “Raise Gasoline Taxes? Funny, It Doesn’t Sound Republican.” The New York Times. October 8, 2006. 56 Ibid.
- 45. CALIFORNIAACTIONPLAN:PrimaryActions 39 Summary: Market-Based Energy Security Tax Relief and Realignment Program Proposed Action Implement a California Foreign Oil Security fee if retail prices of petroleum fuels drop below an initial price floor of the average price of fuel over the six months prior to implementation or $2 per gallon, whichever is greater. This price floor would increase by 1 cent per month for ten years to a maximum level of $1.20 per gallon above the initial price floor, while each step of the way returning all collected funds to all California taxpayers through a rebate. Objectives Significantly spur the use of efficient technologies in vehicles while providing financial rewards to those who use alternative fuels and modes of transportation Outcome in 2020 As an aggregate, new vehicles sold in 2017 are 15 percent more efficient than business as usual Projected Annual Petroleum and GHG Reductions 2.9 BGGE of petroleum and 29 million tons of GHGs per year beginning in 202057 Estimated Annual Cost Overall revenue neutrality to the state; undetermined costs associated with the establishment of a cap-and-trade system Implementation Plan or Proposed Authority CEC, California Franchise Tax Board Responsible/Affected Parties Workers, motorists Proper Avenue of Enactment Legislation 57 This calculation assumes a price floor for petroleum that is $1.20/gallon above unadjusted retail price levels beginning in 2020 and a corresponding short-term petroleum demand elasticity of –0.25, which approximates figures cited by Kayser (Gasoline Demand and Car Choice: Estimating Gasoline Demand Using Household Information, 2000) and others as typical short-term petroleum demand elasticity. Even greater petroleum and GHG reduc- tions for ESTRR could be predicted over time: Espey (Gasoline Demand Revisited: An International Meta-Analysis of Elasticities, 1998) surveyed 42 studies and found the average long-term consumer gasoline demand elasticity to be –0.6. PRIMARY ACTIONS
- 46. CALIFORNIAACTIONPLAN:PrimaryActions 40 Smart Communities Program Unfortunately, the implementation of policies that significantly increase the use of alternative fuels and efficient vehicles alone can’t enable California to secure its transportation energy future. The prob- lem comes down to the fact that people are driving at ever-increasing levels: vehicle miles traveled (VMT) in the state increased by 162 percent between 1970 and 2000.58 This compares with a national increase of 79 percent between 1982 and today.59 This increase in the amount of driving, which is caused by the fact that places where people need to go are increasingly farther away from where they live, effectively negates petro- leum savings due to any vehicular efficiency gains and compounds excessive petroleum consumption. Furthermore, congestion costs people and busi- nesses approximately $17 billion per year and results in more than 665 million gallons of wasted fuel annually.60 Californians spend more than 1 billion hours in traffic per year, and the commercial cost of congestion is over $70 per hour.61 If unaddressed, the problem will become worse as the state population grows from 35 million today to between 44 million and 48 million people in 2025.62 Communities Embrace Smart Growth, Reduce Oil Consumption and Climate Change Impacts “Smart growth” refers to a set of transportation and land-use policy tools that allow people to live closer to where they work, close to mass transit and other car-free travel options, and in the center of towns and cities, thereby reducing sprawl and congestion and preserving the natural environment. Smart growth is not about stopping growth, but about directing and managing growth so that people have options regard- ing where to live and how to travel. Smart growth can lead communities and cities away from oil dependence. Because land use is a primary determinant of personal transportation energy demand, the widespread utilization of smart growth can reduce travel by 50 percent or more.63 In fact, according to the Natural Resources Defense Council, smart growth has the potential to offset 10 million tons of CO2 emissions annually and 60,000 barrels per day of oil, and save motorists $200 billion over ten years.64 Recent reports corroborate these assertions by indicating that if practiced on a larger scale, smart growth can help California significantly reduce its petroleum consumption and GHG emissions. The Center for Clean Air Policy states that if California’s Metropolitan Planning Organizations (MPOs) were to adopt land-use planning measures to counter the increase in sprawl, VMT would be reduced by over 75 million per year and fuel cost savings would exceed $1.5 billion by 2020.65 A national study by CalSTEP’s actions to reduce the need to drive would reduce annual petroleum consumption by 1.8 BGGE per year in 2020. 58 Stoner, Pat. Local Government Commission. Presented at the CEC Land Use and Energy Workshop, September 22, 2006. 59 Kronholz, June. “The Coming Crunch.” The Wall Street Journal. October 13, 2006. 60 Casey, Rose. Relieving Congestion Through Improved Highway Infrastructure: Plans and Solutions. California Department of Transportation. Presenta- tion given at the Transportation Solutions Summit, September 13–14, 2006. 61 Ibid. 62 Roberts, Terry. Land Use and Energy. Governor’s Office of Planning and Research. Presented at the CEC Land Use and Energy Workshop, September 22, 2006. 63 Goldstein, David. Land Use Energy in California. Natural Resources Defense Council. Presented to the CEC Committee Workshop, September 22, 2006. 64 Ibid. 65 Center for Clean Air Policy. Cost Effective GHG Mitigation Measures for California. January 19, 2006; p. 6.
- 47. CALIFORNIAACTIONPLAN:PrimaryActions 41 The Research Institute for Housing America esti- mated potential public and private savings of up to $10 billion per year from the types of smart growth measures contained in the MPOs’ plans.66 A national analysis performed by the American Public Transpor- tation Association indicates that one method alone, transit, can significantly reduce VMT and oil con- sumption by saving more than 855 million gallons of gasoline per year67 and reducing CO2 emissions by more than 7.4 million tons each year.68 Various communities in the United States have already implemented smart growth policies and are reaping the associated benefits. In California, three examples include Windsor, Oakland, and San Mateo. Parts or all of these cities have integrated such fea- tures as intermodal centers to provide quick and easy access to transit and carpools, a bike station for con- venient bicycle parking or service, a focus on pedes- trian activity, mixed-use development, proximity to current or future subway or rail lines, and public space for community activities. Implementing these features improved the welfare of the communities’ residents and, accordingly, the demand to live in such areas. The community of North Beach in San Francisco, with its high-density housing and convenient access to transit, is a smart growth community that allows for driving to be optional. This has led to a 75 per- cent reduction in per-capita vehicular miles traveled, as well as the associated petroleum consumption, compared with a typical sprawl community such as San Ramon.69 Other communities across the nation are pursu- ing smart growth and reducing VMT as well. Atlantic Station in Atlanta, Georgia, recognized as much as a 50 percent reduction in the need for automobile use through the use of smart growth practices.70 Portland, Oregon, absorbed a 26 percent growth in population from the mid-1980s to the mid-1990s with only a 2 percent growth in traffic. Energy con- sumption per capita in Portland dropped 8 percent.71 Portland residents now have shorter average com- mute times and cleaner air.72 In 1997, Maryland passed its seminal Priority Funding Areas Act along with four complemen- tary components that, as a whole, direct the state to target programs and funding to support estab- lished communities and locally designated growth areas, dubbed priority funding areas, and to pro- tect rural areas that fall outside the priority areas. Maryland laid the groundwork for this law in 1992 when it passed the Economic Growth, Resource Pro- tection, and Planning Act, which articulated the state’s growth policy through seven visions centered around concentrating development in suitable areas, protecting sensitive areas, and establishing fund- ing mechanisms to achieve the visions. The 1992 Act also required local jurisdictions to address these same visions in their comprehensive plans. Maryland now has more than 80 programs that help further smart growth.73 To achieve the goal of reducing Californians’ need to drive, CalSTEP recommends that the state upgrade its transportation models, use VMT as the metric for measuring the energy efficiency and petroleum/ GHG-reducing success of smart growth implementa- tion, and adopt a goal of reducing VMT by at least 10 percent over approximately twenty-five years. These actions would be integrated into a Smart Commu- 66 Research Institute for Housing America. Linking Vision with Capital—Challenges and Opportunities in Financing Smart Growth. 2001. [Online] http:// www.housingamerica.org/docs/RIHA01-01.pdf. 67 Shapiro, Robert, et al. Conserving Energy and Preserving the Environment: The Role of Public Transportation. American Public Transportation Associa- tion. July 2002; p. 18 68 Ibid. p. 5 69 Holtzclaw, John. A Vision of Energy Efficiency. The Sierra Club. Presented at the 2004 ACEEE Summer Study on Energy Efficiency in Buildings. Pacific Grove, CA. August 22–27 2004. 70 Lovaas, Deron. Smart Growth and Climate Change. PowerPoint presentation. [Online] http://yosemite.epa.gov/oar/globalwarming.nsf/UniqueKeyLook- up/ADIM5GZQZG/$File/09_Deron_Lovaas.pdf 71 Nelson, Arthur C. “Effects of Urban Containment on Housing Prices and Landowner Behavior,” Land Lines, Lincoln Institute of Land Policy, May 2000; p. 3. 72 Natural Resources Defense Council. Reducing Oil Dependence. [Online] http://www.nrdc.org/air/energy/fensec.asp 73 Maryland Department of Planning. Smart Growth Background. [Online] http://www.mdp.state.md.us/smartintro.htm PRIMARY ACTIONS
- 48. CALIFORNIAACTIONPLAN:PrimaryActions 42 74 AB 1020, Hancock nities program that links new financial incentives for transportation and infrastructure development to the establishment and accomplishment of these recommendations. Such a program would create incentives for the inclusion of overarching transpor- tation energy criteria to link the interactions among government regulation, incentives, market forces, and policies at the local, regional, state, and national levels; all these factors contribute to the complexity of California’s current development decision-making process, which leads to sprawl. Upgrade Transportation Models The state’s first required action is to upgrade its transportation models so the cost savings associated with smart growth can be fully realized. Without such action, the state will continue to base high- way construction projects on transportation models that are blind to many of smart growth’s benefits and therefore fail on a fundamental level to provide incentives for it. To remedy this problem, CalSTEP believes an approach needs to be taken similar to the one proposed by Assemblymember Loni Hancock during the 2006 California legislative session, in a bill that was passed by the legislature but vetoed by the governor.74 This approach would: ·Require Caltrans to work with MPOs and countywide Regional Transportation Planning Agencies (RTPAs) to update transportation models to take into account land-use intensity, access to transit, alternate transportation modes, and other factors. ·Require Caltrans to determine and provide notice to the legislature of a schedule for review and evaluation of current models and model improvements already under way. ·Require Caltrans to meet at least annually with MPOs and RTPAs to evaluate progress and identify resources to help agencies meet the requirements of the bill. ·Consider the upgraded models used by RTPAs and MPOs to be state-of-the-practice and fully adequate technically. Upgrading California’s transportation models is an essential first step, but a more comprehensive approach that links new state funding to VMT reduc- tion needs to be pursued concurrently. Link New State Funding to VMT Reduction The heart of the Smart Communities program links all new state and, to the greatest extent pos- sible, federal transportation and infrastructure fund- ing to the creation and implementation of crite- ria that ensure that this new funding will actively reduce regional VMT, petroleum consumption, and GHG emissions, with the added requirement that it avoids supporting sprawl. Smart Communities would accomplish this task through two requirements: Council of Governments (COGs) to include various provisions in regional blue- prints and MPOs to modify general plans to ensure that the regional blueprints are implemented. Regional blueprints, such as the one adopted by the Sacramento Area COG in December 2005, are comprehensive documents that outline preferred scenarios for population growth, incorporating issues such as land use, water consumption, jobs per household, and VMT. The first aspect of the Smart Communities program establishes that the distribu- tion and distribution priority of all transportation and development-related funds by the California Trans- portation Commission to the various COGs are based at least in part on regional blueprints that contain the following provisions: ·VMT reduction of 10 percent, or the greatest feasible amount; ·Planning principles that encourage development where urban services already exist and that increase the transportation energy efficiency of new development;
- 49. CALIFORNIAACTIONPLAN:PrimaryActions 43 ·The identification of housing locations for all the expected net migration into the region, population growth, household formation, and employment growth; and ·The existence of Development Opportunity Zones that, much like Maryland’s Priority Funding Areas, would encourage development to follow the preferred development scenario within the regional blueprint. These zones would safeguard significant farmlands and habitats from development unless it is infeasible to exclude those lands and the regional blueprint sets forth strategies that would fully mitigate their loss. The second aspect of the Smart Communities program predicates the distribution of funds by COGs, which lack the authority to authorize land use, to MPOs that are implementing the respective regional blueprints, as indicated by their incorpora- tion into an MPO’s general plan.75 Currently, every city and county must adopt general plans, which are long-range policy documents that guide all land- use decisions related to physical development in a community. While there are seven mandatory ele- ments in any general plan, energy consumption is not one of them. In fact, only about 10 percent of general plans currently include an energy element.76 Predicating the distribution of new funding on the adoption and implementation of general plans that reflect the regional blueprints’ focus on a 10 percent VMT reduction will solve this problem. In all cases, funding priority should be ranked and rated based on criteria including the expected level of VMT reduction. The Department of Business, Transpor- tation, and Housing should be in charge of these rank- ings and could issue a yearly “grade” for communities tracking their progress; the California Transportation Commission should be in charge of distributing money to COGs; and COGs should disperse money to local MPOs based on the aforementioned criteria. Like other CalSTEP programs, Smart Communi- ties is inherently flexible. The focus of the program is VMT reduction, but it allows regions to determine their preferred method. In order to facilitate the pro- vision of multiple tools to achieve these objectives, CalSTEP proposes Neighborhood Planning Revolving Loan and Transit Use Assistance programs that pro- vide assistance to communities choosing to reduce VMT. These programs are discussed in the Supporting Actions section. CEQA Assistance with Smart Growth Implementation Finally, the California Environmental Quality Act (CEQA) should provide assistance with smart growth development and VMT reduction. CEQA’s role in identifying and mitigating physical impacts on the environment already allows for EIRs to take place on the programmatic level, thereby subjecting projects to review on only project-specific impacts. However, CEQA can assist smart growth implementation even further by focusing on three targeted areas. 1. The master environmental impact review process should be made specifically applicable to regional blueprints and local neighborhood planning efforts that implement regional blueprints. 2. The urban infill exemption contained in CEQA should be limited to infill that is in alignment with VMT-reducing regional blueprints, and should apply only to local governments that adopt local plans implementing regional blueprints that meet state VMT-reduction goals. 3. CEQA should permit macro-level traffic mitiga- tion policies for development projects within areas whose local governments adopt local plans that implement VMT-reducing regional blueprints. Projects that are consistent with a local jurisdic- tion’s general plan implementing the regional blueprint’s preferred development scenario and that comply with these mitigation policies would 75 In the case of the San Francisco Bay Area, blueprints would be adopted by both the San Francisco Bay Area Metropolitan Transportation Commission and the Association of Bay Area Governments (ABAG). 76 Some plans that include energy elements are the Monterey Bay Regional Energy Plan (2006), Shasta County General Plan, Energy Element (2004), and the City of Indio, Stetson Hills Energy Alternatives Analysis (2000). PRIMARY ACTIONS
- 50. CALIFORNIAACTIONPLAN:PrimaryActions 44 not be required to provide additional project- specific traffic mitigation. Under this proposal, local communities would not lose autonomy because if they don’t agree with the regional blueprint, they don’t have to adopt it. This process is all voluntary, and it is driven by the desire to spend federal and state dollars in the most effective way possible. Ideally, though, the regional blueprints would reflect the interests of the local agencies that make up the COG that is preparing the blueprint. Thus, federal and state dollars would be used to meet transportation needs that assist local governments with the implementation of their local plans. Summary: Smart Communities Program Proposed Action · Provide new state transportation funding to local governments that will implement regional blueprints that reduce VMT by 10 percent over the next twenty-five years. · Upgrade California’s transportation models so the cost savings associated with smart growth can be fully realized. · Use CEQA to encourage local smart growth planning, VMT reduction, and development consistent with regional blueprints. Objective Reduce VMT by at least 10 percent over approximately twenty-five years Outcome in 2020 VMT reduction of 10 percent Projected Annual Petroleum and GHG Reductions 1.8 BGGE of petroleum and 18 million tons of GHGs in 2020 Estimated Annual Cost Variable; determined by new state and federal spending on transportation Implementation Plan or Proposed Authority California Transportation Commission; California Department of Transportation; Department of Business, Transportation, and Housing Responsible/Affected Parties COGs, MPOs, developers Proper Avenue of Enactment Legislation
- 51. •ApplyingSm art G r o w t h a n d A d v a n c e d T r a n s i t • D i v e r s if y ing FuelSupply• Improv in g V e h i c u l a r E f f i c i e n c y • E d u c a t i n g t h e P ublic SupportingActions DETAILEDDESCRIPTIONSANDSUPPORTINGDATA SUPPORTING ACTIONS
- 52. CALIFORNIAACTIONPLAN:SupportingActions 46 While the primary actions may be sufficient to achieve the overall CalSTEP goals on their own, the supporting actions that follow complement them and further enable progress while leading to additional statewide benefits and reducing statewide petroleum consumption, even if they are pursued independently. California Alternative Fuels Infrastructure Partnership California is caught in a “chicken or egg” dilemma when it comes to alternative fuels. Stations need to be built but retailers are hesitant to invest in these stations because the stations will rarely be used without a sufficient AFV population. The ARB tried to solve this problem when it implemented its Clean Fuels program,77 which authorized it to require fuel providers to offer various alternative fuels once a fuel’s California vehicle population reached 20,000. Yet the regulation has not been exercised. Solving the “Chicken or Egg” Dilemma The California Alternative Fuels Infrastructure Partnership solves the “chicken or egg” problem by linking alternative fuel infrastructure financial incentives to the population of the fuels’ associated vehicles in the state. It acknowledges that the state should play a role in financially supporting the roll- out of alternative fuel stations and recognizes that such an investment will only be effective if auto- mobile manufacturers and station owners commit to action in return. Accordingly, under this program infrastructure support would be contingent upon vehicle popula- tion growth, thereby ensuring that AFVs won’t be introduced without infrastructure development. This approach spreads the responsibility for alternative fuel development among the state, automakers, and fuel retailers. 1,800 Alternative Fuel Stations and 11 Million AFVs in 2020 The program would provide a state grant that averages $50,000 for a specific alternative fuel’s infrastructure development when every 6,000 vehi- cles, on average, that can run on that fuel are sold in the state, with a cap in total funding of $9 mil- lion per year over ten years. The goal is to establish a sufficient quantity of alternative fuel stations and 77 CCR Title 13, Div 3, Ch 5, SubCh 8, Sections 2303 and 2303.5.
- 53. CALIFORNIAACTIONPLAN:SupportingActions 47 vehicles by 2020 to make a tangible difference in petroleum reduction and help establish a business case that prompts fuel retailers to continue adopt- ing alternative fuels even after the subsidies run out. These incentives would be in addition to exist- ing federal tax credits for alternative fuels.78 If fully exercised, the CalSTEP Alternative Fuels Infrastruc- ture Partnership would help establish 1,800 alterna- tive fuel stations supporting over 11 million AFVs in 2020, creating a market size that would help justify the addition of alternative fuel stations by retailers beyond the supported 1,800. The CEC, based on work performed by the Oak Ridge National Laboratory,79 has estimated that 1,800 stations, which is equiva- lent to a 20 percent penetration rate, is the nominal level needed to support the use of and create ongo- ing concern for alternative fuels. The program would provide substantial incen- tives for station operators to offer alternative fuels. And rather than having government decide where to build stations, fuel providers would be able to make independent business decisions based on Department of Motor Vehicle registration records or other mar- ket-based scenarios, thereby ensuring that alterna- tive fuel stations are surrounded by sufficient vehicle populations and used accordingly. Fuels that qualify for grants under this program would include those that meet the ARB’s specifica- tions for an alternative fuel and that require new infrastructure fundamentally different from the state’s existing gasoline and diesel infrastructure, with an associated incremental cost of adoption. Such examples of eligible fuels include, but are not limited to, E85 ethanol, compressed natural gas, liq- uefied petroleum gas, hydrogen, and electricity. The AFVs that qualify under this program should meet the ARB’s gasoline emissions standards. Early Adoption Incentives and Other Details Early adoption can be made attractive by front- loading the program for alternative fuel stations, as follows: ·First 450 stations: $75,000 per station ·Second 450 stations: $55,000 per station ·Third 450 stations: $40,000 per station ·Fourth 450 stations: $30,000 per station The vehicle production incentive can be front-loaded as well, as follows: ·First 2.8 million vehicles: one fueling station grant for every 3,000 vehicles running on a specific alternative fuel sold in the state ·Next 5.6 million vehicles: one grant for every 6,000 vehicles sold ·Final 2.8 million vehicles: one grant for every 9,000 vehicles sold Fleet operators and other parties responsible for purchasing and constructing alternative fuel infra- structure would be eligible for grants under the AFPS if the constructed stations are publicly accessible. Grants would be distributed on a competitive basis, and applications from station providers in areas with the largest AFV populations would be given pri- ority. For applications from providers in areas with equal AFV populations, the granting process would defer to first come, first served. 78 In the case of E85, 30 percent of station conversion costs up to $30,000 are covered by federal tax credits. SUPPORTING ACTIONS
- 54. CALIFORNIAACTIONPLAN:SupportingActions 48 Summary: California Alternative Fuels Infrastructure Partnership Proposed Action Link state spending of up to $9 million per year for alternative fuel infrastructure directly to the growth of the AFV population Objectives Spur the growth of viable alternatives to petroleum vehicles and infrastructure by 2020 Outcome in 2020 The establishment of an additional 1,800 alternative fuel stations; one-third of the California vehicle fleet is alternative fuel capable Projected Annual BGGE and GHG Reductions 1.0 BGGE of petroleum and 5 million tons of GHGs if enacted alone (intended to support the Alternative Fuels Portfolio Standard total) Estimated Annual Cost $9 million per year for ten years Implementation Plan or Proposed Authority CEC Responsible/Affected Parties Fuel retailers will apply for and receive the grants; the CEC will distribute them Proper Avenue of Enactment Legislation California Renewable Fuel Production Initiative In April 2006, Governor Schwarzenegger passed Executive Order S-06-06, which, among other things, sets goals and targets for the state to pro- duce at least 40 percent of the renewable fuel it consumes by 2020. While this executive order admi- rably set effective targets for in-state production, it does not require the consumption of in-state feed- stocks to produce this renewable fuel, nor does it propose tactics for overcoming barriers to in-state feedstock utilization, thereby forgoing even greater economic benefit, waste disposal opportunities, and leadership status. CalSTEP believes that for the state to truly benefit from the greater use of renewable fuels, California must directly translate, where feasible, its growing consumption of such fuels into economic growth. By targeting two investments totaling $40 million over five years, the state can help spur the creation of an advanced renewable fuel production industry in Cali- fornia and achieve economic rewards similar to those demonstrated by renewable fuel production in other states and outlined in various California studies. Precedent for State-Level Renewable Fuel Production and Economic Growth IntheUnitedStates,Minnesotaisthestatewiththe most aggressive renewable fuel production platform. Created in response to the state’s desire to capitalize on and expand its agricultural economy and address air-quality problems in the Twin Cities, the Minne- sota Ethanol Program consists of an ethanol producer incentive to encourage in-state production as well as an ethanol-in-gasoline blending requirement. The ethanol plants this program created are expanding Minnesota’s economy by spending more of their money on in-state raw materials and by keeping more of their profits and dividends inside the state.80 Today, the Minnesota Department of Agriculture reports that for every $1 spent in pro-
- 55. CALIFORNIAACTIONPLAN:SupportingActions 49 ducer incentive payments, the state received $16 to $20 in economic impact.81 Overall, Minnesota’s drive to greater use of renewable fuel led to the creation of 16 ethanol plants that produce 550 million gal- lons each year, $587 million in output, 2,562 jobs, and over $1.3 billion in net annual benefit to the state.82 The Minnesota Ethanol Program was stun- ningly successful in developing the state renewable fuel industry, so much so that as of 2001, the state has not only been able to meet its ethanol needs, but has also become a net exporter of the fuel. Similar recently enacted biodiesel programs are prompting Minnesota to become the first state to uti- lize biodiesel fuel on a broad scale, and, as with etha- nol, these programs are leading the state to produce more fuel as well. In fact, the state went from virtu- ally no production in 2004 to a biodiesel production capacity of over 60 million gallons per year in 2005.83 The state’s biodiesel program not only will help reduce oil consumption, but the Minnesota Department of Agriculture estimates that it will also lead to $206 million to $515 million in total statewide economic impacts and create 973 to 2,431 new jobs.84 Missouri believes it can follow the same path as Minnesota. Bills recently passed by the state’s leg- islature lead the Missouri Corn Growers Association to expect ethanol production in the state to reach at least 350 million gallons by 2008, surpassing the 280-million gallon market that would be created by the Renewable Fuels Commission and allowing the state to become a net ethanol exporter.85 In October 2006, Michigan Governor Jennifer M. Granholm announced the formation of the Michi- gan Renewable Fuels Commission to promote simi- lar renewable fuel production and use policies. This commission was established under Public Act 272 of 2006, which, in addition to creating the commission, allowed for the creation of new agriculture renais- sance zones to help spur additional ethanol and biodiesel plants, among other things.86 Transportation Energy from California Feedstocks California has been the nation’s leading agri- cultural state for over fifty years.87 The California Department of Food and Agriculture reports that Cal- ifornia’s agricultural producers received $31.8 billion for their products in 2004.88 By including renewable fuels in the state’s fuel diversification strategy, the CEC believes that California can add several billion dollars to this figure over the next decade while cre- ating thousands of new jobs. California’s renewable fuel production potential isn’t identical to Minnesota’s. For starters, corn is a smaller commodity in California. According to the U.S. Department of Agriculture, California planted about 540,000 all-purpose acres of corn for grain in 2005 compared with 7.3 million planted acres in Minnesota.89 “Grains, oilseeds, dry beans, and dry peas,” a category that encompasses corn, repre- sented 2.8 percent of California’s 2002 market value of agricultural products sold, compared with 41.4 percent in Minnesota. In fact, corn alone represents approximately 25 percent of Minnesota’s total mar- ket value of agricultural products sold.90 Instead, the CEC and other organizations have identified other feedstocks for producing renewable 81 Groschen, Ralph. And Minnesota Department of Agriculture. Economic Impact of the Ethanol Industry in Minnesota. May 2003; p. 13. 82 Minnesota Department of Agriculture. [Online] http://www.mda.state.mn.us/ethanol/default.htm 83 Oregon Environmental Council. Minnesota’s Biofuels Programs: Economic and Environmental Impacts. February 2005; p. 4. 84 Ye, Su. Economic Impact of Soy Diesel in Minnesota. Minnesota Department of Agriculture. July 2004; p. 4. 85 Missouri Corn Growers Association. “House Passes Statewide Ethanol Standard.” April 6, 2006. [Online] http://www.mocorn.org/news/2006/NewsRe- lease-040606House.htm 86 Office of the Governor. “Governor Granholm Makes Appointments to Newly Created Michigan Renewable Fuels Commission.” October 11, 2006. [On- line] http://www.michigan.gov/gov/0,1607,7-168--153361--,00.html 87 California Farm Bureau Federation. 88 California Department of Food and Agriculture. California Agricultural Resource Directory 2005. 89 United States Department of Agriculture. National Agricultural Statistics Service. [Online] http://www.nass.usda.gov/Statistics_by_State/ 90 Ibid. SUPPORTING ACTIONS
- 56. CALIFORNIAACTIONPLAN:SupportingActions 50 fuels inside California. Although starch and sugar crops are in the mix, the greater potential is from sources such as cellulosic ethanol and Fischer Tropsch liquids, also known as biomass-to-liquids (BTL), that produce diesel from gasified biomass. Biomethane frommanure,ricestraw,andotheragriculturalsources may also play a role. These production technologies rely on cellulose in crop waste and purpose-grown biomass, such as grasses and short-rotation trees, rather than starch and sugar crops and aren’t limited by competition with feed, fiber, and food crops. These emerging systems are where California has the larg- est potential for renewable fuel production and eco- nomic growth. Cellulosic ethanol and BTL also have among the lowest life-cycle GHG emissions of liquid biofuels. The CEC states that “at an average yield of 70 gallons per ton, California’s cellulosic resources could potentially support a production level of 1.5 billion gallons of ethanol in the state,” a level that would require “3 million acres, or somewhat more than a third of total irrigated agricultural acres in the state,” to produce from corn grain alone.91 That production number could approach 3 billion gallons by 2020.92 California produces 80 million dry tons of biomass residues each year, with about 32 million dry tons per year that are sustainably accessible for conversion into vehicle fuel. Furthermore, as in Minnesota, the utilization of California feedstocks for renewable fuel production can promote economic growth. The CEC’s PIER Col- laborative Report, titled Biomass in California, states: “Biomass utilization leads to primary jobs creation in collection, construction, and facility operations, and secondary jobs through local and regional economic impacts. These jobs would be created in both rural and urban areas as greater use is made of all types of biomass in the state.”93 Another CEC report94 looked only at the creation of a biomass-to-ethanol industry in California and estimated that, at 2005 consump- tion levels, such an industry would create approxi- mately 8,000 jobs.95 The same report also estimated statewide economic benefits of $5 billion over a twenty-year period at 2005 consumption levels.96 Unfortunately, cellulosic ethanol and BTL are not yet commercially feasible. For cellulosic ethanol, the price and quantity of the cellulose enzymes required to turn cellulosic material into sugar are still exces- sive.97 For BTL, while longer-term prospects indicate that this process can be cost-effective if oil remains above $50 per barrel,98 the Fischer Tropsch process is currently about 75 percent more expensive than the production of crude oil.99 California can help rem- edy this problem by aligning incentives toward the eventual commercialization of these technologies. The larger production potential for these fuels and the lower GHG impact, compared with conventional ethanol and biodiesel mean that the state can reap even larger economic gains by cultivating the indus- try’s presence in California. California’s pioneering efforts along these lines could make us a leader, and allow us, like Minnesota, to export both the technol- ogy and the biofuels for economic gain. 91 CEC. Biomass in California: Challenges, Opportunities, and Potentials for Sustainable Management and Development. CEC-500-2005-160. June 2005; p. 45 92 Germain, Richard, and Katofsky, Ryan. Recommendations for a Bioenergy Plan for California. California Bioenergy Interagency Working Group. April 2006. p. 18. 93 CEC. Biomass in California: Challenges, Opportunities, and Potentials for Sustainable Management and Development. CEC-500-2005-160. June 2005; p. xiii. 94 CEC. Costs and Benefits of a Biomass-to-Ethanol Production Industry in California. P500-01-002. March 2001. 95 Ibid. p. 54. The report estimated 250 ethanol plant positions and 1,350 biomass collection and hauling jobs per 200 million gallons of annual produc- tion. The 2005 California consumption level was approximately 1 billion gallons. 96 Ibid. p. x. 97 Still, costs have been reduced to less than 10 percent of the previous amount through aggressive research. See http://www1.eere.energy.gov/biomass/ pdfs/genencor_esp_review.pdf 98 Tijmensen, M.J.A., et al. “Exploration of the possibilities for production of Fischer Tropsch liquids and power via biomass gasification.” Biomass and Bioenergy 23:129–152. 2002. 99 CEC. Biomass in California: Challenges, Opportunities, and Potentials for Sustainable Management and Development. CEC-500-2005-160. June 2005; p. 47.
- 57. CALIFORNIAACTIONPLAN:SupportingActions 51 Two Targeted Investments in Home-Grown Renewable Fuels The California Renewable Fuel Production Initia- tive would create two targeted investment funds focused on overcoming key obstacles to the creation of an advanced renewable fuel production industry in California. First, in current major renewable fuel–produc- ing states such as Minnesota and Iowa, there is significant activity by the state’s universities and other research organizations focused on feed- stock production and distribution. California has no activity at a comparable level. Consequently, CalSTEP believes that the state should create and the CEC (in consultation with the Department of Food and Agriculture and the Integrated Waste Management Board) should administer a series of competitive research and outreach grants of $4 million per year for five years focused on priority areas and objectives that overcome the key barriers to sustainable California renewable transportation fuel production from crops and waste sources. These barriers are identified in the CEC’s Roadmap for the Development of Biomass in California. Cre- ated in response to the previously mentioned exec- utive order issued by the governor, the report lists priority areas based on a thorough and integrated examination of barriers to renewable fuel produc- tion in California. Through this work, the collabora- tive identified recommended actions in a variety of priority areas. California Biomass Collaborative Roadmap Priority Areas and Objectives Priority Area Objectives Resource access, feedstock markets, and supply Overcome logistical and practical barriers related to feedstock suppliers’ access to renewable fuel resources, the sustainable and affordable delivery of feedstock into renewable fuel markets, and the harmonization of renewable fuel production with sustainable land-use practices Market expansion, access, and technology deployment Address issues concerning biorefineries’ access to biomass feedstock supplies and product markets, and market barriers related to the physical capacity to competitively deliver finished product. Research, development, and demonstration Research, develop, and demonstrate potential conventional and advanced California biofuel feedstocks (crops and waste sources) and technologies Education, training, and outreach Disseminate research and results to and stimulate dialogue between state farmers, biomass collectors, fuel producers, distributors, and other key stakeholders Policy, regulations, and statues Develop and implement comprehensive state-level policies, regulations, and statutes that allow for effective innovation and lead to the fulfillment of the state’s long-term potential Source: California Energy Commission100 100 CEC California Biomass Collaborative. A Roadmap for the Development of Biomass in California. CEC-500-01-016. September 2006. SUPPORTING ACTIONS
- 58. CALIFORNIAACTIONPLAN:SupportingActions 52 Second, CalSTEP believes that the state should mirror a program initiated by New York Governor George Pataki that seeks to jump-start advanced renewable fuel production from in-state resources. This program provides up to $20 million to as many as four applicants or teams of applicants that suc- cessfully demonstrate the technical, financial, busi- ness, and organizational capability to construct a pilot-scale enzymatic-hydrolysis, gasification ligno- cellulose-to-ethanol, or BTL facility that utilizes in- state plants or materials (including waste materials). Recipients must use the information derived from their facilities’ operation to develop commercial- scale production facilities. The outcome for Califor- nia would be the construction of a facility capable of producing transportation-grade renewable fuels from biomass feedstocks in California within two years and the operation of the facility for a minimum of three years. The program would have six goals: 1. The development of at least one (preferably more) commercial-scale cellulosic ethanol and/or BTL production facility in California; 2. The promotion of enzymatic-hydrolysis and/or syngas (gasification) technologies rather than older acid hydrolysis methods; 3. Encouraging the emergence of other innovative methods and fuels that we may not yet be aware of; 4. The creation of jobs and economic activity from the production of advanced renewable fuels; 5. The development of cellulosic ethanol and/or BTL feedstocks grown or produced in California, with resulting jobs and economic activity in the agri- cultural and/or forestry industries, plus increased productivity and utilization of California agricul- tural and/or forest lands while ensuring thought- ful and sustainable land-use practices; and 6. The commercialization of other technologies developed at California colleges, universities, and/ or businesses based in the state. Administered by the CEC in coordination with the California Department of Food and Agriculture and the Integrated Waste Management Board, such a California-based program would harness the state’s ability to overcome first-mover risks associated with early advanced renewable fuel production from in- state feedstocks and solve early production problems and logistics. As countless investment banks and venture capitalists will attest, demonstration of the real-world viability of advanced renewable fuel pro- duction methods is critical if the state is to expect large-scale participation by the investment commu- nity. Clearly, demonstrating viability would help pave the way for adoption of larger capacity and scaled advanced renewable fuel production and achieving their associated economic benefits. Finally, CalSTEP also believes that the use of in- state feedstocks from underutilized land or waste resources should be prioritized. Reuse of materials such as manure, rice straw, cotton gin waste, and municipal solid waste can reduce their environmen- tal impacts. Crops cultivated as winter cover crops or under dryland conditions, or crops that improve soil, water, or air quality should be a priority over the use of other crops for energy production. Accordingly, as the previously outlined questions are answered and California develops more clarity on how to pro- duce and distribute the renewable fuels it produces, CalSTEP advocates providing financial incentives to those who produce and/or purchase more sustain- able feedstocks. One such option is a production tax credit or even abatement for biofuel growers or biorefinery operators on the portion of the fuel they produce from preferred feedstocks, providing a sig- nificant incentive for their use and effective land and resource management in the state.
- 59. CALIFORNIAACTIONPLAN:SupportingActions 53 Summary: California Renewable Fuel Production Initiative Proposed Action $4 million per year for five years in renewable fuels research and outreach grants and $20 million in grants focused on the development of an advanced renewable fuel production industry in California Objectives Link California’s increasing biofuel consumption with state-level economic growth and help commercialize advanced biofuel production in a faster time frame Outcome in 2020 A vibrant in-state conventional and advanced renewable fuel production industry Projected Annual Petroleum and GHG Reductions Reinforce and build political and economic support for other CalSTEP-endorsed actions, including the Alternative Fuels Portfolio Standard EstimatedTotal Cost $40 million over five years Implementation Plan or Proposed Authority California Energy Commission in consultation with the Department of Food and Agriculture and the Integrated Waste Management Board Responsible/Affected Parties Universities, nongovernmental organizations, fuel producers, investment community Proper Avenue of Enactment Legislation State Fleet Leadership Challenge As of 2003, state agencies, which include the Uni- versity of California campuses and state universities, operated nearly 73,000 vehicles that used approxi- mately 46 million gallons of gasoline and 9 million gallons of diesel fuel per year.101 By reducing this con- sumption 20 percent by 2020, the state can set an example for its 2020 transportation energy goals, save money, educate the public, develop creative methods for reducing petroleum consumption, and help expand the market for efficient and AFVs. Living Up to the Spirit of the Energy Policy Act The Energy Policy Act of 1992 requires AFVs to account for at least 75 percent of various state gov- ernment fleets’ annual new light-duty vehicle acquisi- tions.102 In this regard, California is going beyond its obligations. As Table 4 (see page 54) indicates, the state purchased 4,799 vehicles, of which 75 percent (1,124) were subject to the Energy Policy Act require- ments in fiscal year 2001–2002. California surpassed this number by procuring 82 percent (925) of its Energy Policy Act–qualifying vehicles as AFVs.103 101 California State Vehicle Fleet Fuel Efficiency Report: Volume II. Prepared by TIAX LLC for the CEC, Air Resources Board, and Department of General Services. 600-03-004. April 2003. 102 U.S. Department of Energy, Energy Efficiency and Renewable Energy. Energy Policy Act. [Online] http://www.eere.energy.gov/vehiclesandfuels/epact/ state/index.shtml 103 California State Vehicle Fleet Fuel Efficiency Report, Volume I. Prepared by TIAX LLC for the CEC, Air Resources Board, and Department of General Services. 600-03-003. July 2003. SUPPORTING ACTIONS
- 60. CALIFORNIAACTIONPLAN:SupportingActions 54 Table 4: Fiscal Year 2001-2002 State Vehicle Purchases Vehicles Subject to EPAct Fleet Rules Number of Vehicles Purchased Light duty sedans 67 Trucks and vans 19 Hybrid-electric vehicles 113 Alternative fuel vehicles 925 Subtotal 1,124 Vehicles Exempt from EPAct Fleet Rules Number of Vehicles Purchased Law Enforcement pursuit and Undercover vehicles 1,362 Light, medium and heavy duty trucks 648 Emergency Vehicles and Fire Trucks 116 Vans, buses, and heavy equipment 616 Others (Boats, motorcycles, SUVs, etc.) 933 Subtotal 3,675 Total Vehicles 4,799 Source: DGS FY 2001/2002 Fleet Purchase Document On the surface, the state’s procurement habits seem impressive, especially once one considers that, in addition to its 83 percent AFV procurement rate for vehicles that fall under the Energy Policy Act requirements, an additional 10 percent of vehicles procured in this category are hybrids, which leaves just 7 percent as conventional vehicles. However, looking deeper into this data, reveals serious short- comings and missed opportunities. One shortcoming comes with the procurement of flexible-fuel vehicles (FFVs), which can be fueled with gasoline or ethanol (E85). While these vehicles are technically AFVs because of their ability to oper- ate on ethanol, they are rarely fueled with ethanol. In fact, Table 5 indicates that of California’s 5,200- plus AFVs in the 2002 state fleet, only 1.2 percent (63) were fueled with alternative fuels, leaving the remaining 98.8 percent to be fueled with conven- tional gasoline.104 This example illustrates one of many opportunities for the state fleet to reduce its petroleum consumption. Prescribing the Goal, Not the Methods Recently signed legislation addresses the state fleet’s petroleum consumption by focusing on compo- nents that are responsible for that consumption. Most Table 5: Estimated Breakdown of the State Fleet by Technology and Fuel Use VehicleType Primary Fuel Used (w/ Frequency) Number of Vehicles Percent ofTotal Fleet Conventional Light- and Medium-Duty Vehicles (including Motorcycles) 100% Gasoline 62,091* 85.8% Light-Duty AFVs with Bi-, or Flex-Fuel Capability 98.8% Gasolinevii 5,221 7.2% Conventional Heavy-Duty Vehicles 100% Diesel 4,400* 6.1% Light-Duty Dedicated AFVs 100% CNG 288 0.4% Light-Duty Hybrid Electric Vehicles 100% Gasoline 220vii 0.3% Light-Duty Battery EVs 100% Electricity 149 0.2% Totals 72,369 100% Source: Information provided by the Department of Motor Vehicles and the DGS Office of Fleet Administration. Printed by Tiax *Rough estimates: data were unavailable to accurately estimate breakout of gasoline-versus diesel-fueled vehicles. 104 California State Vehicle Fleet Fuel Efficiency Report: Volume II. Prepared by TIAX LLC for the California Energy Commission, Air Resources Board, and Department of General Services. 600-03-004. April 2003. 105 AB 2264 Pavley, Chapter 767, Statutes of 2006.
- 61. CALIFORNIAACTIONPLAN:SupportingActions 55 notably AB 2264 establishes a minimum fuel economy standard for the state fleet that applies to the purchase of passenger vehicles and light-duty trucks powered solely by internal combustion engines utilizing fos- sil fuels.105 Other states are pursuing similar measures that focus on particular technologies: a Colorado law requires that all state vehicles be fueled with B20 by 2007 if the cost is competitive, and a Maryland law requires that the state ensure that at least 50 percent of vehicles using diesel fuel in the state vehicle fleet use a blend of fuel that is at least B5. The State Fleet Lead- ership Challenge is different in that it would prescribe an overarching goal rather than focusing on possible methods of achieving that goal. The program follows the model established by North Carolina, which issued a similar challenge to its fleet in 2005.106 The North Carolina program orders state fleets to “develop and implement plans to improve use of alternative fuels, synthetic lubricants, and efficient vehicles” so that the plans “achieve a 20 percent reduc- tion or displacement of the current petroleum products consumed by January 1, 2010.” The advantage of such a goal is that a variety of methods can be utilized to achieve it. The state can meet the target by fuel swapping, blending renewable fuels with petroleum fuels, adopting AFVs, phasing in more fuel-efficient vehicles, or some other yet-to-be-discov- ered method. By employing this process, state fleets are not only using their formidable purchasing powers107 to expand markets, which the San Francisco Chronicle described as “compelling volume purchasing power that no automaker can ignore,”108 but are also actively engaged in the search for creative and cost-effective techniques for reducing petroleum consumption. If North Carolina can employ these methods and achieve this goal by 2010, surely California can do it by 2020. Furthermore, the state’s expressed demand for vehicles that may not exist—such as significantly more efficient law enforcement and emergency vehicles that meet the requirements of their users—would help spark innovation and the development of new technologies that can be offered in other platforms and to other users. State demand can assist with the development, implementation, and diffusion of the technologies that will be used in these and other platforms. Fleet operators and other parties responsible for the purchasing and construction of alternative fuel infra- structure to meet this challenge would be eligible for grants under the California Alternative Fuels Infrastruc- ture Partnership if the constructed alternative fuel sta- tions are publicly accessible. Additional incentives could be allocated if necessary. 106 Section 19.5(a), SL2005-0276. 107 Each year, California purchases an average of 5,100 vehicles for its state fleet. 108 Black, Edwin. “Auto Fleets Could Put U.S. on the Green Highway It’s Going to Take to Leave Gas Behind.” San Francisco Chronicle. October 15, 2006. By employing this process, state fleets are not only using their formidable purchasing powers to expand markets, but are also actively engaged in the search for creative and cost-effective techniques for reducing petroleum consumption. SUPPORTING ACTIONS
- 62. CALIFORNIAACTIONPLAN:SupportingActions 56 New Transportation Future and Revolving Loan Programs CalSTEP recommends an increase in state-level investment in vehicle technologies that can reduce vehicular petroleum consumption and GHG and over- all emissions. CalSTEP recommends the creation of: ·A $140-million-per-year New Transportation Future program that provides competitive grants and/or creates a series of high-profile inducement prize competitions in California focused on facilitating the commercialization of advanced, clean, and low-GHG transportation technologies and fuels that reduce oil consumption in light-, medium-, and heavy-duty vehicles, and make the air cleaner while providing assistance for these technologies’ adoption. Summary: State Fleet Leadership Challenge Proposed Action Direct the secretary of state and the Consumer Services Agency to develop and implement a plan to improve the overall state fleet’s use of alternative fuels, synthetic lubricants, and/or efficient vehicles. The plan should achieve a 10 percent reduction or displacement of the current petroleum products consumed by January 1, 2012 and a 20 percent reduction or displacement of the current petroleum products consumed by January 1, 2020, compared with 2003 base levels. Objectives · Demonstrate state leadership · Account for EPAct loopholes · Educate the public Outcome in 2020 State fleet uses 20 percent less petroleum Projected Annual Petroleum and GHG Reductions 0.01 BGGE of petroleum and 0.1 ton of GHGs in 2020 (primary purpose is leadership and education) Estimated Annual Cost N/A Implementation Plan or Proposed Authority State and Consumer Services Agency and/or the Department of General Services Responsible/Affected Parties State fleet operators Proper Avenue of Enactment Gubernatorial executive order or legislation ·A $25 million low-interest revolving loan or loan guarantee fund to reduce heavy-duty vehicle (Classes 3–8) petroleum consumption and GHG emissions. As a whole, this program would serve as a “car- rot” for a state that has a number of strong “sticks,” or regulations, thereby helping to meet ambitious criteria and GHG emission regulatory targets while creating new economic opportunities. Continued Leadership Needed on Advanced Transportation Technologies While there are a number of near-term tech- nologies and fuels that can help secure California’s energy future, further advances are needed, and there is a significant shortfall of public investments in these technologies. In the United States, annual federal spending for all energy research and devel- opment is less than half what it was a quarter-cen-
- 63. CALIFORNIAACTIONPLAN:SupportingActions 57 tury ago.109 According to W. David Montgomery of Charles River Associates, this is particularly prob- lematic, for the race to stabilize world tempera- tures “will be an economic impossibility without a major R&D investment.”110 A large part of the problem is that many of the potential fuels and technologies are high risk, with long development and regulatory approval timelines, which discourages private investors and venture capitalists who tend to want a large payback within five years. Additional government funding is needed to encourage private-sector investment. Accord- ingly, CalSTEP recommends that the state invest the same level of funding allocated for the Carl Moyer program ($140 million per year) in advanced, clean, and low-GHG transportation technologies for light-, medium-, and heavy-duty vehicles. Competitive Transportation Energy Investment to Duplicate Moyer’s Superior Cost-Effectiveness The first 50 percent ($70 million) of this funding should be directed toward research, development, and demonstration of these technologies. Because a number of existing programs already support lon- ger-term academic research, this program would be oriented toward technologies that have the poten- tial to be commercially viable within three to five years. Grants would be awarded on a competitive basis by ranking proposals on petroleum and GHG and other emissions reductions achieved per dollar. Proposals that achieve the greatest savings per dol- lar would receive high-priority funding. For 80 per- cent of the funds, a 1:1 match would be required, meaning that for each dollar invested by the state, the grant recipient would have to provide at least another dollar of private, federal, or regional gov- ernment investment. This requirement would help leverage the state’s investment. The remaining 20 percent of the funds would have a less stringent matching requirement to encourage the develop- ment of higher-risk concepts. For that portion, only a 25 percent match would be required. Thus, for every $0.75 invested by the state, the recipient would have to provide only $0.25. The competitive nature of the grants would effec- tively duplicate the competitive aspect of the Moyer program, leading to superior cost effectiveness. The Moyer program was created in 1998 as a state and local partnership to improve air quality. It operates through the ARB, which distributes money to local districts to make grants for the most cost-effective measures to reduce emissions from heavy-duty vehi- cles. While Moyer originally focused on cost-com- petitive NOx abatement from heavy-duty vehicles, it was expanded in 2004 to cover PM, hydrocarbons, and light-duty vehicles. In addition, the funding was raised in 2004 from $25 million per year to $140 million per year. Moyer program funding comes from smog-check exemption fees that new-vehicle owners pay, a fee on tires, and an optional district increase in vehicle registration fees. The Moyer program is famous for its cost-effec- tive reduction of criteria emissions. In fact, in its first six years, the Moyer program averaged a superb $3,000 per ton of NOx reduced.111 By ranking the grant applications based on the level of petroleum and GHG reductions per dollar invested, the New Transportation Future program would seek to repli- cate the success of the current Moyer program in the area of petroleum and GHG reduction on a broader scale, applying to light-, medium-, and heavy-duty vehicles. If the track record of the Moyer program is a guide, a funding program focused on transportation energy and GHG emissions would provide superior cost-effective petroleum and GHG reductions while utilizing technologies capable of rapid deployment. 109 Revkin, Andrew C. “Budgets Falling in Race to Fight Global Warming.” The New York Times. October 30, 2006. 110 Ibid. 111 California Air Resources Board. Carl Moyer Program update presentation. January 20, 2005. SUPPORTING ACTIONS
- 64. CALIFORNIAACTIONPLAN:SupportingActions 58 Competitive Inducement Prize Competitions Effectively Leverage Private Investment and Spur Industry Growth A portion of this funding could be used by the state to initiate a series of high-profile inducement prizes and/or a series of smaller targeted competi- tions that would identify criteria for meeting goals and targets (including product characteristics and sales requirements) and then reward winners that achieve the goals with a cash prize and/or advanced market commitments. This model provides an enor- mous amount of leverage to help overcome numer- ous large and small barriers to reducing petroleum consumption and spurring alternative fuel use in California. Benefits might include: ·The creation and deployment of efficient transportation technologies and vehicles; ·The production and sale of various alternative fuels or fuel-related technologies; ·The creation and deployment of mass transportation technologies and platforms; ·The demonstrated reduction of various communities’ need to drive; ·Positive national media exposure; and ·Increased private investment in California companies. Historically successful inducement prizes include: ·The Longitude Act of 1714, which revolutionized navigation and time; ·The French Academy’s 1791 Chemical Engineering Prize, which revolutionized chemical engineering; ·The 1927 Orteig Prize, which prompted Charles Lindbergh’s solo flight across the Atlantic Ocean and revolutionized modern aviation; ·The 1992 Golden Carrot Prize, which revolutionized energy efficiency; and 112 Schroeder, Alex. The Application and Administration of Inducement Prizes in Technology. Independence Institute. IP-11-2004. December 2004; p. 9. 113 Ibid. p. 3. 114 Ibid. ·The 2004 Ansari X PRIZE, which revolutionized personal space flight. Inducement prizes are very successful models not only for achieving goals, but also for leveraging pri- vate investment and achieving cost-effectiveness. The Ansari X PRIZE’s $10 million investment created more than twenty-four private space industry com- panies that collectively spent close to $400 million in pursuit of the prize.112 This 40:1 investment ratio is topped by the DARPA Grand Challenge, which achieved an estimated 50:1 investment ratio.113 Even the Orteig Prize achieved an 18:1 investment ratio.114 Furthermore, as these examples demonstrate, the visionary nature of inducement prize competitions enables them to capture the public’s imagination and lead it to rally around a common cause. Because of this proven leverage, a number of gov- ernment agencies and nonprofit organizations are looking to inducement prizes as a tool for creating real change . A sample of this emerging “inducement prize industry” includes: ·NASA received U.S. congressional approval for $250 million in prize money for its Centennial Challenges; ·The H Prize received U.S. congressional approval for $100 million in prize money related to the production of hydrogen; ·DARPA continues to use prizes to forward innovation in a variety of military areas; ·The National Academies and the National Science Foundation received U.S. congressional approval to create the “Inducement Prize Project,” which will research prizes for areas of discovery that have a “high risk and reward potential”; and ·The California-based X PRIZE Foundation will launch a series of “mega-prizes” focused on numerous issues and objectives.
- 65. CALIFORNIAACTIONPLAN:SupportingActions 59 California inducement prize competitions that focus on transportation energy should be identi- fied and managed by the CEC in consultation with the ARB, the Department of Food and Agriculture, the Integrated Waste Management Board, and the Department of Business, Transportation, and Hous- ing. Project management of specific competitions can be managed in-house or contracted out to a California organization. Whether the program is a competitive Moyer-like grant or an inducement prize competition, its prime contractors or recipients of the allocated funds would be California companies, universities, or nongovern- mental organizations. However, non-California orga- nizations could be members of teams that receive funds. Not all the work would need to be performed in California, but additional credit would be given for projects that would result in economic development within California, thereby supporting the growth of California’s Clean Car Technology Cluster of compa- nies and their associated contributions to the state’s economy, which were described earlier. Incentives for Deployment of Emerging Climate- Friendly Vehicles, Technologies, and Fuels The remaining 50 percent ($70 million) of the pro- gram’s funding should be used to provide incentives for deployment of cleaner vehicles, technologies, and fuels that reduce GHG emissions to levels drastically lower than those of current-generation vehicles. The funding would go to measures that provide the highest amount of petroleum and GHG reductions per dollar invested, as ranked and determined by the CEC. Some examples of how incentives could be used include buying down the cost of vehicles and tech- nologies spurred by the in-state inducement prize competitions, dramatically more efficient vehicles, alternative fuel stations (especially if these funds are invested in the manner described under the Alterna- tive Fuels Infrastructure Partnership), and technolo- gies offered by the EPA’s SmartWaySM program that reduce heavy-duty vehicle fuel consumption and GHG emissions. Complementary Low-Interest Revolving Loan Program for Heavy-Duty Vehicle Technologies Heavy-duty vehicle operators can receive a direct financial payback by adopting efficiency-enhancing technologies. Accordingly, CalSTEP recommends a revolving low-interest loan program to complement the New Transportation Future program. Under the loan program, any heavy-duty vehicle owner or oper- ator would be eligible to apply for funding, includ- ing fleet owners and independent operators. Such a program could be particularly helpful to independent truck operators, who usually purchase new trucks from fleets once the trucks are about five years old, and then drive them for another twenty years or so. These inde- pendents pay for their own fuel and are not always able to pass on high diesel costs to their clients. This revolving loan program would enable independents to pay for the efficient technologies that reduce petro- leum consumption and save them significant amounts of money over their vehicles’ lifetimes. In lieu of a direct-lending component in this pro- gram, the revolving loan portion would provide loan guarantees for commercial lenders willing to make low-interest loans to independent owner-operators. Such a program could merely buy down a portion or all of the interest rate offered by commercial lenders, thereby reducing the logistical difficulties the state might encounter with high-volume loan applications and management. Overall, this program would be augmented by the SmartWaySM Transport Partnership, a voluntary collaboration that is partnering with states such as Arkansas, Minnesota, and Pennsylvania to offer SmartWaySM Upgrade Kits composed of cost-effec- tive technologies to reduce heavy-duty fuel con- sumption, lower GHG and other emissions, and save truckers money. Given proper state funding, which is provided under this revolving loan program, Smart- WaySM can make it easier for heavy-duty vehicle users to identify relevant combinations of cost-effective technologies and facilitate their deployment. SUPPORTING ACTIONS
- 66. CALIFORNIAACTIONPLAN:SupportingActions 60 Cost-Effective Technologies Can Make a Big Difference A plethora of heavy-duty technologies are cost- effective, ready for implementation, and would be eligible for assistance under the New Transportation Future and revolving loan programs. A strength of these programs is that they are focused on the over- arching goals of petroleum and GHG reductions, rather than on choosing which technologies to promote. Examples of potentially eligible technologies include, but are not limited to, those listed in Table 6. A recent two-year collaborative study conducted by members of the Truck Manufacturers Association and the U.S. Department of Energy indicates that the widespread application of new aerodynamic technolo- gies alone could significantly reduce fuel consumption. The combined effect of all aerodynamic improvements on one vehicle from techniques such as reducing gap enclosure, implementing side skirts, and redesign- ing side mirrors could result in as great as 23 percent reduction in aerodynamic drag, which would yield a fuel economy improvement of nearly 12 percent.115 Table 6: Potentially Eligible Technologies under the New Transportation Future and Revolving Loan Programs Examples of Potentially Eligible Projects Description Petroleum/GHG Reduction Potential Alternative fuel or hybrid vehicle retrofits Vehicle conversion to run on natural gas, propane, electricity, or other ARB-approved alternative fuels >50% Auxiliary power units (APUs) Efficient units powered by petroleum or alternative fuels that supply electricity and/or other amenities to slumbering trucks, thereby enabling the main engine to shut off and save fuel ~5–15% Vehicular electrification Enabling trucks to plug in and utilize electricity at truck stops for auxiliary power, allowing the main engine to shut off and save fuel during rest >15% Low rolling- resistance tires Tires, such as the Michelin single-wide tire, that reduce the rolling resistance and the associated power required to move the vehicle, saving fuel 4–6% Truck and trailer aerodynamics Side-skirts, moldings, and other aerodynamic vehicular enhancements 5% Onboard equipment that monitors fuel economy Enables operators to adopt more economical driving habits 1–2% Onboard equipment that monitors tire pressure Enables operators to maintain appropriate tire pressure 3% 115 Green Car Congress. Study: Improvements in Large Truck Aerodynamics Could Save US Nearly One Billion Gallons of Fuel Annually. November 14, 2006. [Online] http://www.greencarcongress.com/2006/11/study_improveme.html#more
- 67. CALIFORNIAACTIONPLAN:SupportingActions 61 The SmartWaySM program provides an illustration of the potential cost savings from SmartWaySM Upgrade Kits that are composed of combinations of these technologies: Possible SmartWay Upgrade Kit Options Total Cost Benefits (Monthly Fuel Savings) Monthly Loan Payment @5% for 48 months Net Monthly Savings Heater, tires, aero, DOC $10,700 $520 $266 $254 APU, tires, aero, DOC $17,700 $636 $440 $196 Heater, tires, aero, PM filter $16,000 $520 $386 $134 Source: http://www.epa.gov/SmartwayLogistics/documents/420f06016.pdf Interestingly, Wal-Mart provides an excellent example of how radical reductions in petroleum consumption can be achieved using a combination of simple technologies in conventional vehicles. The company’s 2507 Initiative sets a goal of reduc- ing by 50 percent the number of diesel-equivalent gallons of fuel used to move one ton one mile.116 While many techniques will be utilized to reach this target, including more efficient cargo handling and packaging, enhanced vehicular fuel economy is the main method of efficiency improvement that Wal- Mart is pursuing. The company has identified the methods and validated the size of petroleum sav- ings, as listed in Table 7. As one can see by looking at Table 7, Wal- Mart is achieving sizeable fuel reductions by uti- lizing simple and often inexpensive technologies such as improved aerodynamics and fuel-efficient tires. To obtain even better results, the company is planning to review hybrid-electric configurations, diesel-electric refrigeration, and further improved platform aerodynamics in the future.117 The CalSTEP low-interest revolving loan program would promote each of these technologies as well as their greater diffusion into heavy-duty vehicular platforms. 116 Benge, Eric. ICCT Presentation. Wal-Mart. February 22, 2006. 117 Ibid. Table 7: Wal-Mart 2507 Initiative Methods and Validated Results GHG/Fuel Reduction Method Size of Reduction Fuel efficient tires (Super Single and/or FE Duals) 6% APU (heating, cooling, battery charge, truck engine heat) 8% Fuel additive (stabilizer and octane booster) 1.6% Weight reduction (1124 lbs to date) 0.05% Aero package (tractor only) 3% Aero package (trailer contribution still under evaluation) 5.8% Tag axle (reduce weight and rolling resistance) TBD Ultra shift transmission (direct versus overdrive) TBD Gear ratio validation (seeking optimum operating range) TBD Source: Wal-Mart SUPPORTING ACTIONS
- 68. CALIFORNIAACTIONPLAN:SupportingActions 62 Picture 3, which compares Wal-Mart’s 2005 base- line tractor/trailer configuration with a possible 2507 configuration, illustrates how minor modifi- cations can lead to big fuel savings. Picture 3: Minor truck modifications, such as those demonstrated by Wal-Mart, lead to big fuel savings; such modifications could qualify for assistance under the New Transportation Future and Revolving Loan programs. Summary: New Transportation Future and Revolving Loan Programs Proposed Action · Create a $140 million-per-year competitive New Transportation Future program that provides grants and creates competitions focused on facilitating the commercialization of advanced transportation technologies and fuels that reduce oil consumption, while also providing incentives to users to adopt these products · Create a new $25 million low-interest revolving loan or loan guarantee program to reduce heavy-duty (HD) vehicle (Classes 3-8) petroleum consumption and GHG emissions Objectives · Accelerate the adoption of advanced vehicle and fuel technologies · Cost-competitively reduce California petroleum consumption in heavy-duty fleets Outcome in 2020 Vehicles sold in 2020 use 15 percent less fuel than a business-as-usual scenario (contributing program) Projected Annual Petroleum and GHG Reductions 0.3 BGGE of petroleum and 3 million tons of GHGs in 2020. (This program primarily supports and enables CalSTEP’s overall efficiency goal.) Estimated Annual Cost $140 million per year plus one-time $25 million cost associated with establishment of the revolving loan program Implementation Plan or Proposed Authority CEC, ARB Responsible/Affected Parties Light-, medium-, and heavy-duty vehicle and vehicle technologies manufacturers Proper Avenue of Enactment Legislation This revolving loan program would enable independents to pay for the efficient technologies that reduce petroleum consumption and save them significant amounts of money over their vehicles’ lifetimes.
- 69. CALIFORNIAACTIONPLAN:SupportingActions 63 Energy Independent Vehicle Labeling Program CalSTEP proposes a voluntary vehicle labeling pro- gram that digests oil consumption and GHG emission data that are (or soon will be) parts of new California vehicles’ window stickers into a simple, widely rec- ognizable label with two grades that the public will understand indicate superior performance. Such a system would parallel previous success stories where so-called “green” labeling made significant progress in encouraging the public to support a common goal. Success through Green Labeling Repeatedly, green labeling has curbed the pur- chase and use of products associated with various social issues and/or encouraged the purchase and consumption of those that are more socially desir- able. For instance, the “dolphin safe” tuna label, which expresses a product’s compliance with fishing practices that don’t harm dolphins, is simple, widely recognizable, and represents alignment with an issue that the public was educated to understand. Simi- larly, the EPA’s Energy Star® program teaches con- sumers about the need for and benefits of increased energy efficiency, and encourages them to buy prod- ucts with such traits. Its success comes from the fact that increased demand for Energy Star® products created a system in which manufacturers compete with each other to be designated an Energy Star® product, thereby driving up efficiency throughout the product category. As exemplified by Toyota’s “Hybrid Synergy Drive” badge, Honda’s VTEC logo, and Ford’s FFV/hybrid decal, green labeling has already made its way onto automobiles. However, these labels indicate technol- ogies rather than performance standards, and are far from standardized across the manufacturing spec- trum. For this reason, this program’s vehicular label would instead reflect performance in reducing GHG emissions and oil consumption and would feature two different grades: one that reflects absolute per- formance and one that reflects performance relative to a vehicle’s footprint size. This two-tiered approach is superior to a single label for several reasons. A system that focuses only on absolute emissions and consumption neglects the majority of consumers who don’t wish to buy the smallest and most efficient vehicles. And a system that focuses only on relative emissions and consump- tion can potentially mislead consumers: they may think, for example, that an ultra-efficient large vehicle is superior to an inefficient subcompact, which may not be the case. Combining the two approaches would give us the best of both worlds: it would promote the superiority of vehicles that are absolutely efficient regarding GHG emissions and oil consumption and also provide a useful educational tool for comparing the relative efficiencies of vehicles for consumers who may need larger vehicles to fit their lifestyles. Such a combination would encourage people to drive the best vehicles on the road, or failing that, to drive the best vehicles that meet their needs. CalSTEP chose the metric used to measure vehi- cles’ performance (GHG emissions plus oil consump- tion) based on its effectiveness at pursuing transpor- tation energy security criteria. According to the Oak Ridge National Laboratory (ORNL), this metric, which considers two metrics together, proved superior at meeting overall objectives compared with other metrics such as miles per gallon. This combination provides incentives to increase vehicular efficiency and move toward alternative fuels. Ranking Vehicles Under the Energy-Independent Vehicle labeling program, automakers would be free to implement the technologies they wish, even technologies that have yet to be introduced, to achieve the petroleum reduction goals that would allow them to qualify for an award. The qualifications for each label would be as follows: ·The primary Platinum label would focus on absolute emissions and consumption: GHGs (measured in tons per year) added to oil (barrels per year) that a vehicle consumes. The vehicles with a number less than 15.5 in the SUPPORTING ACTIONS
- 70. CALIFORNIAACTIONPLAN:SupportingActions 64 program’s first year of implementation would be awarded the Platinum label. This number would decrease by 2.5 percent each year. ·A secondary Gold label would focus on relative emissions and consumption: GHG emissions and oil consumption would be added and then divided by the vehicles’ footprint (square feet). The vehicles with a number less than 0.425 in the program’s first year of implementation would be awarded the Gold label. This number would also decrease by 2.5 percent each year. The calculations used to determine these numbers assume that: ·In the program’s first year, the values associated with the labels should roughly capture the top 20 percent of performers, a standard that should increase each subsequent year. ·Vehicles travel 15,000 miles each year. ·The footprint is listed as square feet and is calculated by multiplying track width (the distance between the centerline of the tires) and wheel base (the distance between the centers of the axles). ·GHG emissions are determined by using fuel specification and emissions estimates from the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation Model developed by Argonne National Laboratory. ·Vehicles that are capable of running on alternative fuels as well as gasoline, like FFVs and bi-fuel vehicles, are running on alternative fuels 50 percent of the time if a sufficient fueling infrastructure is in place for the relevant alternative fuel. (The CEC would define “sufficient” as applied to each fuel.) Table 8 provides hypothetical examples of some of the different combinations of efficiency levels and alternative fuels that vehicles can incorporate to earn primary and secondary labels. While ORNL modeled its work on the Energy Star® program, bracketing the top 20 percent of vehicles each year and awarding them accordingly, CalSTEP’s approach assigns specific criteria for meet- ing the requirements of each label. CalSTEP chose this approach because it would provide certainty for manufacturers should they plan for their vehicles to be awarded. Theoretically, under this scenario, an automaker’s entire lineup could qualify for one or both awards, thereby providing a larger benefit to society. The qualifying numbers decrease over time in order to account for natural efficiency increases and further spur the utilization of efficient and/or Table 8: Hypothetical Scenarios for Earning Primary and Secondary Labels (Base Year 2010) Primary Labels Oil Use (barrels per year) + GHG Emissions (tons per year) ≤15.5 in 2010 Secondary Labels Oil Use (barrels per year) + GHG Emissions (tons per year)/Footprint Size ≤0.425 in 2010 · A pure gasoline-powered vehicle achieves ≥35 mpg in 2010, ≥44 mpg in 2020. · A natural gas vehicle achieves ≥15 mpg in 2010, ≥18 mpg in 2020. · An FFV with sufficient infrastructure achieves ≥22 mpg in 2010 and ≥26 mpg in 2020. · A small gasoline-powered vehicle (e.g., Chevy Aveo) approximates 34 mpg in 2010 and 41 mpg in 2020. · A small gasoline-powered SUV (e.g., Ford Escape) or small-to-midsize gasoline-powered sedan. approximates 30 mpg in 2010 and 36 mpg in 2020. · A midsize gasoline-powered vehicle (e.g., Toyota Camry) approximates 27.5 mpg in 2010 and 33 mpg in 2020. · A large gasoline powered SUV (e.g., Ford Expedition) approximates 23.5 mpg in 2010 and 28.5 mpg in 2020.
- 71. CALIFORNIAACTIONPLAN:SupportingActions 65 low-GHG technologies and fuels. The numbers for the primary and secondary labels are modeled on ORNL’s work.118 Like other successful labeling programs, this pro- gram rewards vehicles with superior performance but does not affix a “scarlet letter”–type label to inferior vehicles. Furthermore, the program would be voluntary: Manufacturerswouldn’tberequiredtoaffixtheselabels to their windows, but instead would be enticed to do so because of the labels’ prestige and positive associations lent to their vehicles by displaying such an award. Improving Public Recognition and Spurring Production of Efficient Vehicles The success of this program would largely depend on the design and differentiation of the logos plus consumers’ knowledge of their existence and sub- sequent understanding of their meaning. To begin addressing these issues, the state would hold a design competition for the primary label as part of the program’s initial launch and publicity campaign, differentiating it from the secondary label by chang- ing its color scheme. Such a competition has prece- dent in California: in 2002, the state challenged resi- dents to come up with a design for the state quarter. Over 8,000 people submitted designs within three months, and a twenty-member commission selected the ultimate winner. A vehicle label design compe- tition could generate awareness of the problem of GHG emissions and oil consumption, enthusiasm for addressing it, superior out-of-the-box designs, pub- licity, and a grassroots source of the designs. Summary: Energy Independent Vehicle Labeling Program Proposed Action Initiate a green labeling program that awards vehicles that produce low amounts of GHGs and consume low amounts of oil Objectives · Provide the car-buying public with a simple, easy-to-understand metric for recognizing which vehicles emit low amounts of GHGs and consume low amounts of oil on an absolute level and relative to vehicle size and utility · Prompt manufacturers to reduce vehicular GHG emissions and fuel consumption · Educate the public and generate widespread awareness about vehicular impact on energy security Outcome in 2020 As an aggregate, new vehicles sold in 2017 are 15 percent more efficient than business as usual (contributing) Projected Annual Petroleum and GHG Reductions Supporter and enabler of CalSTEP’s overall efficiency goal that leads to 2.9 BGGE of petroleum and 29 million tons of GHG reductions in 2020 Estimated Annual Cost Marginal Implementation Plan or Proposed Authority CEC Responsible/Affected Parties Vehicle manufacturers and/or dealers are voluntarily affected Proper Avenue of Enactment Legislation 118 Greene, David L., et al. Energy Star Concepts for Highway Vehicles. Oak Ridge National Laboratory. June 2003. SUPPORTING ACTIONS
- 72. CALIFORNIAACTIONPLAN:SupportingActions 66 The winning logos of the design competition win- ners would be copyrighted and standardized so that manufacturers could permanently place high-qual- ity reproductions on the winning vehicles if they wished. According to U.S. copyright laws, the state would license the manufacturers of vehicles that are recognized under the program to reproduce and place the logos on the vehicles. Neighborhood Planning Revolving Loan and Transit Use Assistance Programs Like other CalSTEP programs, the Smart Commu- nities program is embedded with inherent flexibility. The focus of the program is VMT reduction, but it allows regions to determine their preferred method. In order to facilitate the provision of multiple tools to achieve these objectives, CalSTEP proposes a Neighborhood Planning Revolving Loan program to be administered by the Department of Housing and Community Development, which would assist with the preparation and implementation of regional blueprints that meet the Smart Communities pro- gram’s goal of reducing driving by 10 percent. Current community planning in California takes place on the project level, with individual develop- ers paying the cost of EIRs for specific properties they seek to develop. Moving the planning process to the programmatic level would allow communi- ties to account for the ways in which properties and neighborhoods interact, adjust for driving increases, and streamline the process by which developers can obtain approval to implement smart growth devel- opment if they adhere to the programmatic plans. The main barrier to programmatic planning is the cost: because it’s higher and it benefits multiple projects, developers opt for project-level EIRs. The state’s creation of a revolving loan program that is replenished by the fees that developers would have paid for project-level EIRs would allow program-level planning without costing developers more money. At a funding level of $20 million per year for five years, the state would help overcome the largest barrier to community planning on a programmatic level and, at its fully funded level, enable more than 30 concur- rent programmatic EIRs, thereby significantly assist- ing with smart growth development. The funds under this program could also be applied to the development of program-level EIRs based on regional blueprints. Such macro-level EIRs would focus on big-picture issues such as cumulative trans- portation, air quality, and land-use issues. Once local general plans are amended to implement these larger- scale regional plans, the reviews for projects within the preferred development scenario and consistent with a local government’s general plan would be limited to design-specific issues. Local jurisdictions would retain control but could plan on a broader basis and stream- line preferred development timing. Because of the significant petroleum and GHG reduction potential of public transportation, Cal- STEP also proposes that the state examine and offer incentives that spark greater use of public transit, and take steps in this area to further align state spending with the goal of reducing the need to drive. Examples of such incentives and alignment actions could include: ·Tax incentives to encourage employers to contribute financially to their employees transit commute to work and to coordinate such efforts with local transit agencies; ·Tax and other incentives for the establishment of privately funded amenities to public transit development projects, such as connections to transit stations, bus stop shelters, and off street layover facilities; ·Tax and other incentives for the adoption of “complete streets” standards to ensure that municipal thoroughfares are not designed for cars alone but also for transit users, pedestrians, and bicycle riders; ·Rewarding state-funded transportation projects that have a high level of employer participation in transit pass programs; and
- 73. CALIFORNIAACTIONPLAN:SupportingActions 67 ·Encouraging state-funded projects, such as subsidized housing and the construction of state and local public buildings, to be readily accessible to public transit. Usage-Based “Pay As You Drive” Automotive Insurance Current nationwide automotive insurance rates are structured as fixed and can often poorly reflect the real-world miles that a motorist drives. Accord- ingly, the EPA estimates that once an individual purchases a car, roughly 80 percent of their trans- portation costs remain the same on a monthly basis regardless of how much or little they drive.119 Under 119 Environmental Protection Agency. Project XL. [Online] http://www.epa.gov/projectxl/progressive/index.htm 120 Edlin, Aaron S., and Mandic, Pinar Karaca. “The Accident Externality from Driving.” Journal of Political Economy 114.5. 2006. pp. 931–955. 121 Litman, Todd Alexander. Pay-As-You-Drive Pricing for Insurance Affordability. Victoria Transport Policy Institute. May 17, 2004; p. 12. 122 Given that reduced driving reduces liability and collision exposure, form pay-as-you-drive automotive insurance in its purest would reduce these two aspects of motorists’ policies proportionally with miles abated, so an owner of an undriven vehicle would pay only for the comprehensive portion of the policy. Summary: Neighborhood Planning Revolving Loan and Transit Use Assistance Programs Proposed Action · Establish a Neighborhood Planning Revolving Loan program that expands the use of program-level EIRs that are based on regional blueprints · Focus project-specific EIRs on project design and direct on-site environmental effects while potentially expediting the development approval process · Provide tax and other incentives and align state spending to spark the greater use of public transit Objectives Fund smart growth implementation by facilitating program-level community planning and provide incentives for the use of public transit Outcome in 2020 VMT reduced by 10 percent (contributing) Projected Annual Petroleum and GHG Reductions Supporter and enabler of CalSTEP’s overall VMT goal that leads to 1.8 BGGE of petroleum and 18 million tons of GHG reductions by 2020 Estimated Annual Cost $20 million per year for five years Implementation Plan or Proposed Authority CTC; Caltrans; Department of Business, Transportation, and Housing Responsible/Affected Parties COGs, MPOs, developers Proper Avenue of Enactment Legislation this fixed-rate system, where motorists aren’t pro- vided with significant incentive to reduce their level of driving, the increase in traffic density from a typi- cal additional driver increases total statewide insur- ance costs of other drivers by $1,725 to $3,239 per year.120 In contrast, usage-based (“pay as you drive”) automotive insurance, which recognizes actual VMT and reduces premiums for motorists who drive fewer miles than their plans allow, can be a powerful tool, providing a financial incentive for reducing unneces- sary vehicular trips. Studies suggest that drivers paying per-mile pre- miums would be prompted to reduce driving due to average savings of $50 to $100121 or even more122 on SUPPORTING ACTIONS
- 74. CALIFORNIAACTIONPLAN:SupportingActions 68 their insurance premiums, without raising the cost of insurance for an average driver.123 In fact, Wash- ington State Department of Transportation market survey research indicates that offering vehicle insur- ance discounts based on reduced driving mileage is one of the most attractive incentives to encourage commuters to shift to ridesharing and transit. As a result, King County Metro, the largest rideshare and transit agency in the Puget Sound region, is seek- ing to partner with an insurance company to offer usage-based insurance to its 150,000 Transit Pass holders.124 Insurers also like usage-based insurance because a 10 percent reduction in driving is esti- mated to result in a 12 to 15 percent reduction in total vehicular crashes.125 Commuters in urban areas would especially benefit from the wide rollout of usage-based insurance, because traffic congestion delays could be reduced by 10 to 25 percent.126 Usage-Based Insurance in Other States In March 2002, the city of Philadelphia passed Resolution Number 020174, which authorized the City Council’s Committee on Law and Government to “conduct a full and comprehensive investigation of the desirability of offering mile-based insurance to drivers in…Pennsylvania and directing the Commit- tee to communicate its findings to the Mayor’s Task Force on Automobile Insurance Rate Reduction and the Pennsylvania General Assembly.”127 In June 2003 the Oregon legislature passed HB 2043, which provides a $100-per-policy tax credit to insurers that offer usage-based pricing. The Ore- gon Environmental Council is working with the EPA, Environmental Defense, and others to build a data- base of potential usage-based insurance customers to convince the insurance industry that a market for usage-based insurance exists, and it is meeting with insurance companies to encourage them to offer usage-based insurance.128 In Massachusetts, the Environmental Insurance Agency is partnering with the Plymouth Rock Assur- ance Corporation to offer policies to members of the Transportation Alliance, a “green” buying club that brokers discounts on environmentally friendly prod- ucts. They are attempting to accumulate data proving that low-mileage drivers cost less to insure, with the intent of petitioning insurance regulators in Massa- chusetts to authorize a usage-based program.129 Real-World Usage-Based Automotive Insurance In 1998, the Progressive Group of Companies of Mayfield Village, Ohio, launched a two-year usage- based automotive insurance pilot program in Texas dubbed AutographSM. The program proved popular, providing savings of 25 percent (on average) over tra- ditional insurance policies as people chose to drive less.130 Partly in response to the success of this pro- gram, Texas passed HB 45 in 2001, the “cents per mile choice,” which as introduced would have ordered all automotive insurance companies to eventually offer cents-per-mile policy prices, but in reality became a voluntary program designed to encourage industry cooperation in making mandatory insurance work.131 The success of the Texas pilot program led Progres- sive to roll out a larger usage-based insurance pro- gram in Minnesota dubbed TripSense™. Like the Texas 123 Baker, Dean. “Insurance by the Mile: A Simple Way to Slow Global Warming.” Harper’s Magazine. June 2006. 124 Pay-As-You-Drive (PAYD) Auto Insurance. Environmental Defense. [Online] http://www.environmentaldefense.org/article.cfm?ContentID=2205 125 Litman, Todd Alexander. Pay-As-You-Drive Pricing for Insurance Affordability. Victoria Transport Policy Institute. May 17, 2004; p. 12. 126 Pay-As-You-Drive Vehicle Insurance, Converting Vehicle Insurance Premiums Into Use-Based Charges. TDM Encyclopedia, Victoria Transport Policy Institute. Updated December 14, 2005. [Online] http://www.vtpi.org/tdm/tdm79.htm 127 Resolution No. 020174. Council of the City of Philadelphia. [Online] http://www.environmentaldefense.org/documents/2226_tasco.htm 128 Litman, Todd Alexander. Pay-As-You-Drive Pricing for Insurance Affordability. Victoria Transport Policy Institute. 17 May 2004; p.16 129 State Environmental Resource Center. Pay-As-You-Drive Auto Insurance, Policy Issues Package. [Online] http://www.serconline.org/payd/background. html 130 Frey, Joe. “Progressive’s ‘Pay As You Drive’ Auto Insurance Poised for Wide Rollout.” [Online] http://info.insure.com/auto/progressive700.html 131 National Organization for Women. CentsPerMileNow. [Online] http://www.centspermilenow.org/
- 75. CALIFORNIAACTIONPLAN:SupportingActions 69 program, participation in TripSense™ is voluntary and an insured motorist may stop participating and switch back to a conventional policy at any time. Unlike the Texas program, which relied upon GPS, mobile phone, and crash-data recorder technologies, TripSense™ gives customers a data-collection device (DCD) called a TripSensor™, which plugs into their vehicle and cap- tures usage information. Customers automatically receive a 5 percent discount when they sign up for the program. At renewal, they receive a 5 percent dis- count for sharing the vehicle information with Pro- gressive; they can earn an additional discount of up to 20 percent based on how much, how fast, and when the vehicle is driven. Until TripSense™ customers upload the informa- tion to Progressive, they retain full control over the data collected by the device. At any time, they can disengage the DCD from their vehicle, though the device must be installed for at least 95 percent of the data collection period for customers to qualify for a discount. Customers can connect the TripSensor™ to a personal computer and review their driving data before deciding whether to share it with Progressive. They can even delete the data if they wish. Progressive is not the only company offering usage-based automotive insurance. General Motors’ GMAC Insurance is providing discounts to OnStar cus- tomers in Arizona, Indiana, Illinois, and Pennsylvania who opt into a usage-based program. The discounts, as percentages, are greater the less one drives. In the United Kingdom, Norwich Union received overwhelm- ing initial response to its announcement of a usage- based program.132 Changing California law to allow the more accu- rate collection of vehicular data, and to offer discounts based on the collection of this data, would allow companies that are currently offering usage-based insurance policies, such as Progressive and GMAC, to offer such policies in California. It would also, through competition, encourage other automotive insurers to develop and implement usage-based policies, thereby allowing participating drivers to keep more money in their pockets should they decide to drive less. Bringing Usage-Based Automotive Insurance to California Unfortunately, California law actively prevents insurance companies from pursuing even voluntary programs that would improve collection of real-time miles-traveled data, financially reward motorists for participating in usage-based automotive insurance, and facilitate the use of such programs. Section 1861.02(a) of the California Insurance Code states that the primary factors in determining auto insurance rates, in decreasing order of importance, shall be: (1) The insured’s driving safety record; (2) the number of miles he or she drives annually; and (3) the number of years of driving experience the insured has. While the law mandates that mileage be one of three primary factors in determining auto insurance rates, the California Depart- mentofInsurancerequiresinsurerstouseapolicyholder’s estimate of the annual miles that a policyholder expects to drive in the subsequent 12-month period and prevents insurers from calculating the insured’s rate for the policy term in which mileage was actually driven. Though the department is in the process of issuing a new regulation that will allow insurers to request certain objective information to track the insured’s mileage, the regulation asserts that the informa- tion must be used prospectively. For example, a new policyholder might provide an odometer reading of 50,000 miles, and also provide an annual mileage estimate of 10,000. If, at the end of an annual policy, the policyholder’s odometer is 70,000, the insurer may not adjust the premium for that annual policy, 132 Litman, Todd Alexander. Pay-As-You-Drive Pricing for Insurance Affordability. Victoria Transport Policy Institute. May 17, 2004; p. 15. Progressive TripSense™ Unit SUPPORTING ACTIONS
- 76. CALIFORNIAACTIONPLAN:SupportingActions 70 133 NOW has created a model for this legislation: http://www.now.org/issues/economic/insurance/bill.html though it does have certain rights to adjust the esti- mate for the subsequent policy period. This is not true usage-based pricing, and consumers can easily game the mileage estimate. To bring usage-based automotive insurance to California, the California Code of Regulations, Title 10, section 2632.5 needs to be modified as follows: 1. DCDs must be allowed to collect mileage infor- mation. To enable true usage-based insurance, California law must allow an insurer to use tech- nological means to capture mileage information during a policy term and to use that information to adjust the premium for that term. 2. The code must provide for discounts to driv- ers who report mileage using DCDs. While there are three primary factors in determining automotive insurance rates, there are sixteen secondary rating factors that can be used in any combination to less significantly determine spe- cific rates and calculate the premium. These sec- ondary rating factors may include marital status, frequency and severity of claims in the geo- graphic area where your car is garaged, gender, vehicle type, and so on. These secondary factors should be amended to allow discounts for users who participate in usage-based programs. With- out discounts for using DCDs and sharing data, insured motorists may not have an incentive to participate in usage-based rating programs, at least until the cost-saving benefits of such pro- grams become apparent. Inthefuture,afterthesemodificationstotheCalifor- nia Code of Regulations have been made and insurance providers’ and motorists’ responses can be gauged, the state could explore providing incentives to entice insur- ance companies to offer consumers a choice between time-based and mile-based premiums, as groups such as the National Organization of Women advocate.133 Summary: Usage-Based “Pay As You Drive” Automotive Insurance Proposed Action Change the California Code of Regulations to allow insurance providers to implement voluntary programs and technologies that more accurately track vehicle mileage, and to provide these insurers with the authority to offer discounts based on the adoption of such programs, the reporting of miles traveled, and the reduction of vehicle miles traveled (VMT) Objectives Provide monetary incentives to drivers who drive less, thereby assisting with the reduction of VMT by at least 10 percent Outcome in 2020 VMT reduced by 10 percent (contributing) Projected Annual Petroleum and GHG Reductions Supporter and enabler of CalSTEP’s overall efficiency goal that leads to 2.9 BGGE of petroleum and 29 million tons of GHG reductions in 2020 Estimated Annual Cost Cost savings to drivers who participate in usage-based programs Implementation Plan or Proposed Authority California Department of Insurance Responsible/Affected Parties Auto insurers, motorists Proper Avenue of Enactment Modification of regulation either by the commissioner or through legislation
- 77. •ApplyingSm art G r o w t h a n d A d v a n c e d T r a n s i t • D i v e r s if y ing FuelSupply• Improv in g V e h i c u l a r E f f i c i e n c y • E d u c a t i n g t h e P ublic AdditionalInformation INFORMATION
- 78. CALIFORNIAACTIONPLAN:AdditionalInformation 72 CalSTEP Background The California Secure Transportation Energy Partnership (CalSTEP) launched in June 2005 as a public-private partnership composed of diverse California stakeholders and decision makers who wish to move beyond political impasse to reach consensus on and implement specific strategies to increase California’s transportation energy effi- ciency and alternative fuel use, while growing the economy, reducing GHG emissions, and improving the overall welfare of Californians. The underlying assumption of CalSTEP is that California doesn’t have to wait for federal action to experience the benefits of decreased oil depen- dence. Instead, precedent indicates that the state has the ability and, with the failure of federal lead- ership, the duty to move forward with an aggres- sive yet thoughtful and comprehensive strategy to move beyond oil. As repeatedly demonstrated, such state leadership can grow the economy and lead to adoption by other states and, eventually, the federal government. Accordingly, CalSTEP advocates for the advance- ment of state-level legislative measures, local initia- tives, corporate actions, and enhanced public aware- ness to achieve the following goal: A sustainable reduction in the overall on- road petroleum fuel consumption in Califor- nia to at least 15 percent below 2003 levels by 2020 while increasing the proportion of alternative transportation fuels in the state to at least 20 percent of total on-road trans- portation fuel demand. CalSTEP partners agreed that actions taken to achieve this goal should also achieve the following objectives: ·Benefit state and local business and economies ·Promote sustainable growth ·Focus on multiple transportation fuels, technologies, and platforms ·Maintain or improve environmental quality and public safety ·Build upon previous efforts (when applicable) ·Focus on state-level actions and measures ·Empower local stakeholders and governments CalSTEP is a diverse and bipartisan coalition of key California stakeholders from the private, public, and nongovernmental sectors. By arranging itself in this manner, CalSTEP seeks to move past political impasse, not just to provoke research and education but also to help create consensus and spur action within California to secure the state’s transportation energy future. CalSTEP Principles and Process The CalSTEP process for creating this Action Plan was a thoughtful, pro-business approach that took over a year and a half from initiation to completion. From the beginning of summer 2005 through the end of 2006, CalSTEP Partners met monthly to chart a course for more sustainable transportation energy consumption and economic growth in Cali- fornia. At these meetings, the partners reviewed and discussed material that CALSTART staff had researched and presented . The process was very deliberate and incremental: discussing broad issues at initial meetings, refining these issues at subsequent meetings, and outlin- ing the fine points and details at the final meetings. Accordingly, the partnership produced several interim documents that reflected its process and its progress. The first document was the CalSTEP “Framework for
- 79. CALIFORNIAACTIONPLAN:AdditionalInformation 73 Action,” which articulated the partnership’s bylaws and the principles it would adhere to. This document was presented at the CALSTART 2020 conference in December 2005, one year from the call to action that led to CalSTEP’s creation. In late 2005 and early 2006, the CalSTEP Partners identified four near-term, high-impact measures that California could take to reduce its petroleum consumption: ·Using More Renewable Fuels CalSTEP recommends an aggressive increase in the replacement of fossil fuels with biofuels such as biodiesel, ethanol, and biomethane (especially those that are produced in California), in both low and high percentages for on-road transportation purposes. Such action can rapidly reduce California’s oil dependence while meeting all the state’s needs, including those concerning air quality, health, and economic welfare. ·Investing in Transportation Energy Security CalSTEP recommends increasing investment in measures that will improve the state’s transportation energy efficiency and diversify its fuel supply. Financing for this fund could come from the governor’s infrastructure development bond, a small public-goods charge on gasoline and diesel fuel, a fee levied on containers that carry goods through California ports, or comparable measures. ·Spurring Model State, Local, and Private Fleets CalSTEP recommends directing and funding state fleets to go beyond Energy Policy Act requirements and purchase significantly more efficient (>20 percent) and/or alternative-fuel vehicles, and ensure that bi-fuel or flex-fuel vehicles are operated on alternative fuels. This action will not only serve as an example to the state’s local, corporate, and other fleets, but will also use the state’s economic power to help expand the market for advanced vehicles, thus enabling other fleets to follow the state’s lead. ·Leveraging State Transportation Infrastructure Funding to Reward Smart Growth and Energy- Efficient Transportation State funding should be used for roads, infrastructure, and the movement of goods to spur the implementation of smart growth and energy-efficient transportation measures. An essential first step is for the state to direct Caltrans to actively work with metropolitan planning agencies and local governments to link transportation funding with smart land-use policies that result in more efficient transportation energy use. Governor Schwarzenegger has proposed measures to mitigate air pollution from the growing goods movement industry, and the state should develop similar programs to expand the fuel supply by encouraging alternative fuels and high-efficiency cargo vehicles. Several CalSTEP partners approached various members of the legislature and state governmental organizations in February 2006 to draw attention to the partnership’s initial recommendations. During CalSTEP’s March 8, 2006, meeting in San Diego, the partnership reviewed a report pre- sented by Navigant Consulting to the CEC regard- ing the commission’s recommendations to Governor Schwarzenegger to increase biofuel use and decrease oil consumption. After reviewing the consultant’s initial recommendations, the partnership provided the following recommendations at a CEC hearing on March 9 in Sacramento: 1. No backsliding on biofuel blending. In response to the draft report’s recommendation that the “Air Resources Board … develop regula- tions that maximize the flexibility of using biofu- els, while preserving the environmental benefits of their use,” CalSTEP recommended that by 2008, the state should explicitly incorporate a minimum INFORMATION
- 80. CALIFORNIAACTIONPLAN:AdditionalInformation 74 pooled renewable fuels standard (about 6 per- cent) into its existing fuel regulatory activity. Fur- thermore, CalSTEP strongly supported the state’s overall alternative fuel goal (20 percent by 2020) and the role of biofuels in meeting this goal. 2. Lead the creation of biofuel specifications. CalSTEP recommended that the governor direct the ARB and the CEC to set fuel specifications for appropriate biodiesel blends, including B10. Cal- STEP also encouraged the state to work with the federal government and other states, or act on its own, to create interim standards until ASTM specs are established. 3. Examine reformulated gasoline composi- tion to accommodate higher biofuel blends. In response to the draft report’s recommenda- tion that the state conduct “a comprehensive and peer-reviewed study of the costs, emissions impacts, and fuel supply consequences of low- level ethanol blends (i.e., E6 to E10), and incor- porate the study findings into the rulemaking process,” CalSTEP recommended that the ARB, in coordination with the CEC, commission a study to determine how the composition of reformulated gasoline can be changed so that net emissions do not increase when using higher biofuel blends (such as E10). 4. Aggressively increase E85 availability and use. In response to the draft report’s recom- mendation that the state address “the emissions performance, fuel supply consequences and cost issues surrounding greater use of E85 in Califor- nia,” CalSTEP recommended that the state pro- vide mechanisms for E85 growth that parallel the state’s Hydrogen Highway efforts. However, the partnership stated that this should not be an approach driven by regulation, but rather should focus on incentives, pricing, economics, and the free market to create a climate where E85 can be competitive in California. 5. Increase and ensure state fleet E85 usage. CalSTEP agreed with the draft report’s recom- mendation to “direct state agencies to purchase biofuels, bio-based products, and biopower, including combined heat and power where pos- sible, with specific targets for 2010 and 2020,” and to “encourage local governments and public institutions to follow the state’s lead.” In its pre- sentation, CalSTEP pointed out that of the more than 5,200 AFVs in the 2002 state fleet, only 63 (1.2 percent) were fueled with alternative fuels, leaving the remaining 98.8 percent to be fueled with conventional gasoline. Accordingly, CalSTEP recommended that the secretary of the State and Consumer Services Agency develop a plan to be used in the procurement process for vehicles and fuels to most effectively reduce the state fleet’s petroleum consumption. The plan should be completed and delivered by the end of 2007 and ensure that the state’s AFVs operate on alterna- tive fuels. The state should implement E85 pumps at its refueling facilities so that 50 percent of state’s FFVs operate on E85 by 2010 and 90 per- cent of state’s FFVs operate on E85 by 2012. CalSTEP also submitted letters of support for three pieces of legislation that made their way through the California legislature in 2006: AB 1020 (improved transportation modeling to support smart growth), SB 1675 (biodiesel blending), and SB 1511 (gasoline modeling that accounted for renewable fuel usage). From March through December 2006, however, the partnership focused its energies on the completion of the CalSTEP Action Plan.
- 82. 48 South Chester Avenue Pasadena, California 91106 626/744-5600 (phone) 626/744-5610 (fax) For more information, email us at: mpeak@calstart.org or visit us at www.CalSTEP.org This Action Plan is printed on 100% recycled, chlorine-free paper, 50% of which is post-consumer, using vegetable-based inks.