Analysis of the 2008-09 Budget Bill: Resources

Air Resources Board (3900)

The Air Resources Board (ARB), along with 35 local air pollution control and air quality management districts, is charged with protecting the state’s air quality. The local air districts regulate stationary sources of pollution and prepare local implementation plans to achieve compliance with federal and state standards. The ARB is responsible primarily for the regulation of mobile sources of pollution and for the review of local district programs and plans. The ARB also establishes air quality standards for certain pollutants, administers air pollution research studies, and identifies and controls toxic air pollutants.

The budget proposes $579.4 million from various funds, primarily special funds and bond funds, for support of ARB in 2008–09. This is a decrease of $180 million, or roughly 24 percent, from estimated 2007–08 expenditures. This decrease mainly reflects the elimination of one–time expenditures from bond funds that occurred in the current year for replacement or retrofit of the state’s oldest, most–polluting school buses. The budget also reflects a number of increases from special funds, including $6 million to continue the implementation of the Governor’s Hydrogen Highway initiative, $5.6 million for continued implementation of the Global Warming Solutions Act of 2006 (also know as “AB 32”), $1.7 million to begin implementation of the Air Quality Improvement and Enhanced Fleet Modernization Program (Chapter 750, Statutes of 2007 [AB 118, Núñez]), and $1.6 million for enforcement of new and enhanced air quality regulations.

Additional Funding for Hydrogen Highway Unwarranted

The budget proposes $6 million in one–time funding from the Motor Vehicle Account for financial incentives for the establishment and deployment of hydrogen–powered vehicle technology and infrastructure. We recommend that the funding be deleted primarily because, given relatively little progress to date, the Air Resources Board has sufficient

funds from previous budget appropriations to fund continued program activity in the budget year. In addition, given that the Legislature now has information to evaluate the record of the Governor’s Hydrogen Highway initiative, it is in a position to set its own hydrogen policy priorities before approving additional funding. (Reduce Item 3900–001–0044 by $6 million.)

Governor’s Executive Order. In April 2004, the Governor issued an executive order designating California’s 21 interstate freeways as the California Hydrogen Highway Network (the Hydrogen Highway). The order further declared the administration’s intention to plan and build a network of fueling stations along the state’s major roadways so that, by 2010, every Californian would have convenient access to hydrogen fuel. The order asserted numerous benefits of a hydrogen–based fuel economy as justification for development of the Hydrogen Highway, including the administration’s claims that:

• Hydrogen can be produced from clean, renewable energy.
• Hydrogen–powered vehicles can break California’s dependence on unstable energy sources.
• Hydrogen–powered vehicles produce zero or near–zero emissions and can reduce California’s contribution to global warming.
• Public investment in hydrogen energy stations enhances the economic feasibility of hydrogen infrastructure.

Legislature Has Provided One–Time Funding for the Hydrogen Highway Several Years in a Row. Since 2005, the Legislature has approved three, one–time appropriations totaling $18.6 million and $430,000 for ongoing program support staff for the Governor’s Hydrogen Highway initiative, first in 2005 policy legislation, and again as part of the 2006–07 and 2007–08 budget processes. Figure 1 provides details on the appropriations and their eligible uses.

In addition, in connection with its 2005 appropriation, the Legislature placed conditions upon expenditures and ARB’s administration of the program. Specifically, the Legislature expressed its intent that the funded activities:

• Contribute to a 30–percent reduction in greenhouse gas emissions.
• Use at least 33 percent renewable resources in the production of hydrogen for vehicles.
• Cause no increase in toxic or smog–forming emissions.

The Legislature expressed its intent to continue to evaluate the appropriateness of ongoing funding of the Hydrogen Highway initiative. To that end, the Legislature required reoccurring reports on the program every six months, as well as a one–time report in 2006 on the development of hydrogen–related business activity in California and the appropriateness of continued deployment of hydrogen fueling stations.  

What Has the State Gotten for Its $19 Million? Despite over $19 million in funding since 2005, the administration has little visible progress to show towards building the Hydrogen Highway described in the Governor’s executive order. While the executive order envisions that, by 2010, every Californian will have access to hydrogen fuel through a network of fueling stations along California’s major highways, to date, not a single hydrogen fueling station funded by the program is under construction or in operation. While ARB indicated it has an agreement with Pacific Gas and Electric (PG&E) to build and operate one public hydrogen fueling station in the Bay Area, PG&E has since publicly stated its intent not to proceed with construction of the station, citing a “more pressing need” to develop other alternative vehicle technologies.

According to ARB, it has expended $6 million to fund part of the costs to modify or build 22 hydrogen–fueled vehicles, including buses, shuttle vans, cars, and trucks. However, at the time this analysis was written, and despite repeated requests over a period of several months, ARB did not indicate which, if any, of those 22 vehicles currently are operating on California roadways versus how many are under construction or in the planning stages. Nor did ARB indicate the extent to which the availability of state funding was a necessary factor in the development of these vehicles.

Finally, the program is close to meeting, but has not yet met, a statutory requirement to develop and adopt, by January 1, 2008, standards for use of hydrogen as a transportation fuel. As of the writing of this analysis, the California Department of Food and Agriculture (CDFA), in conjunction with ARB, has developed such hydrogen fuel standards and received public comment on them. The CDFA anticipates that it will adopt final standards in April of 2008.

Figure 2 summarizes the expenditures to date and projects funded from the $19 million of available funding.

Budget Proposes Additional $6 Million for Hydrogen Fueling Stations and Vehicles. The Governor’s budget proposes an additional $6 million from the Motor Vehicle Account for ARB to continue implementation of the hydrogen initiative. Of that amount, $5 million is to provide matching funds for the construction of hydrogen refueling stations and $1 million is for matching funds for the deployment of hydrogen–fueled vehicles.

Substantial Funds Still Available From Previous Appropriations. As shown in Figure 3, of the $19 million appropriated for the Governor’s hydrogen initiative to date, nearly one–half—$9.4 million—remains uncommitted and available for new projects. Of that remaining amount, $5.3 million is available specifically to provide matching funds for hydrogen fueling stations. Another $4.1 million remains broadly available to fund any eligible program activity, including providing matching funds for hydrogen fueling stations or deployment of hydrogen–fueled vehicles. Therefore, the $9.4 million of uncommitted funding remains available for the very purposes identified for additional funding in the Governor’s budget.

Request for Additional Funds Is Unwarranted. Based on our review, we conclude that ARB has sufficient resources to continue the hydrogen initiative in the budget year without additional funding. We base our conclusion on two findings. First, nearly one–half the funds appropriated during the three–year history of the program—$9.4 million—currently remains available for new projects. The ARB has not made a compelling case as to why that amount (or the portion of that amount expected to remain available at the beginning of the budget year) will be insufficient to fund the anticipated level of program activities in the budget year. In this regard, ARB has not provided evidence of anticipated funding commitments that will substantially draw down the balance of the available funds between now and the beginning of the budget year. Second, ARB indicates that it intends to use all but $600,000 of the $9.4 million as matching funds for the construction of publicly accessible hydrogen fueling stations. Given that ARB has made little progress to date towards successfully awarding funds for fueling stations, we do not think it likely that these funds would be committed in the budget year and therefore the request for an additional $5 million for that purpose has not been justified. We therefore recommend that the Legislature deny this budget request.  

Legislature Has Adopted Several Policies That Encourage Development of Alternative Fuels. The Legislature has adopted a number of policies that support, explicitly or implicitly, the use of alternative transportation fuels to achieve numerous environmental and other policy goals. Among the more significant of these legislative policies are:

• The California Clean Air Act (Chapter 1568, Statutes of 1988 [AB 2595, Sher]). Requires attainment of state ambient air quality standards by the earliest practicable date.
• State Alternative Fuels Plan (Chapter 371, Statutes of 2005 [AB 1007, Pavley]). Requires the Energy Commission, working
• with ARB and other relevant state agencies, to develop a plan to increase use of nonpetroleum transportation fuels.
• The Global Warming Solutions Act of 2006 (Chapter 488, Statutes of 2006 [AB 32, Núñez]). Establishes the goal of reducing the state’s emission of greenhouse gases, by 2020, to what they were in 1990.

Hydrogen–Fueled Vehicles Might Help Achieve Legislative Goals, but Barriers Exist. Because hydrogen fuel cells produce no tailpipe pollution, and because of hydrogen’s abundance, some see hydrogen as a promising alternative to fossil–based transportation fuels, such as petroleum, that would allow California to achieve certain of its environmental quality and related policy goals. Substantial barriers, however, stand in the way of the widespread commercialization of hydrogen as a fuel source for passenger vehicles. These barriers include the current high cost of fuel cell systems when compared to internal combustion systems, the high cost to develop the infrastructure necessary to deliver hydrogen for use by the consumer, and the expense of producing hydrogen from energy sources that do not themselves emit greenhouse gases or harmful air emissions. These barriers make it questionable when, if ever, hydrogen fuel cells will come to be widely used to power passenger vehicles.

In Absence of Legislative Direction, Governor Drives the State’s Hydrogen Policy. As described above, the Legislature has established policies that are compatible with the Governor’s vision for a hydrogen–fueled transportation economy. The Legislature has approved funding for the administration’s program to advance hydrogen fuel infrastructure, although it has not explicitly endorsed the administration’s hydrogen–related policy goals in legislation. The Legislature has, however, required the administration to report regularly on implementation of the hydrogen program and on development of the state’s hydrogen–fueled vehicle economy in general.

Legislature Can Use Program Data to Explore Hydrogen Policy Options. For three years, ARB has encouraged development of hydrogen–fueled vehicles and hydrogen fueling stations. The administration also has released several reports tracking the hydrogen program’s progress to date, as well as that of hydrogen–fueled vehicle development in general. Those reports and other program data provide the Legislature with information upon which to establish its own hydrogen policy for California.

The Legislature Has Options. Encouragement of transition to a hydrogen–fueled transportation economy through the establishment of refueling infrastructure is one of several ways that the Legislature might seek to achieve certain of its environmental and related policy goals. Specifically, the Legislature could:

• Choose to redirect hydrogen program funding to additional research to advance energy generation methods that emit fewer air pollutants, generation methods that someday could be used to produce “clean” hydrogen.
• Increase funding for grants and other financial incentives to encourage use of emissions–reducing and efficiency–increasing technologies that are commercially available today, such as gasoline–electric hybrid vehicles.
• Endorse the Governor’s vision of a statewide network of hydrogen fueling stations to enable the market for commercial hydrogen passenger vehicles.

The point is that the Legislature has options that may differ from the Governor’s vision of a publicly funded hydrogen highway.

Legislature Should Set Course for the Hydrogen Highway. As demonstrated in this analysis, there is no need for additional funding for the state’s hydrogen program in the budget year. For this reason, we recommend that the Legislature deny any funding proposals for the Governor’s hydrogen program at this time. During the budget year, the Legislature can evaluate more recent developments in hydrogen–fueled vehicle technology, as well as the hydrogen program itself, without delaying the program’s progress. Based on that evaluation, the Legislature can set its hydrogen policy priorities before approving additional funding.