Amended  IN  Senate  May 10, 2021
Amended  IN  Senate  March 10, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Senate Bill
No. 697

Introduced by Senator Hueso

February 19, 2021

An act to add Section 38572 to the Health and Safety Code, relating to greenhouse gases.


LEGISLATIVE COUNSEL'S DIGEST


SB 697, as amended, Hueso. Cap-and-Trade Program: Green Hydrogen Credit Program.
The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency responsible for monitoring and regulating sources of emissions of greenhouse gases. The act authorizes the state board to adopt greenhouse gas emissions limits and emissions reduction measures by regulation to achieve the maximum technologically feasible and cost-effective reductions in greenhouse gas emissions in furtherance of achieving the statewide greenhouse gas emissions limit. The act authorizes the state board to include in its regulation of emissions of greenhouse gases the use of market-based compliance mechanisms.
This bill would require, on or before December 31, 2023, the state board to develop and implement consider developing and implementing a Green Hydrogen Credit Program to accelerate the deployment and production of green hydrogen, as defined, at large industrial facilities and to promote the transition to a carbon-free economy. The bill would require the state board to determine whether a Green Hydrogen Credit Program would be an effective and appropriate approach to using the state’s Cap-and-Trade Program to incentivize green hydrogen production. The bill would require require, if the state board determines that a Green Hydrogen Credit Program would be effective and appropriate, the state board to develop a Green Hydrogen Credit Program and review and revise its existing regulations to provide industrial facilities that produce green hydrogen with an additional greenhouse gas allowance of 10 tons for every metric ton of green hydrogen produced during a compliance period, as defined, and to develop and adopt any new regulations the state board deems necessary to implement the program. The bill would authorize the state board, in developing the program, a Green Hydrogen Credit Program, to adopt a declining greenhouse gas allowance allocation schedule through December 31, 2030.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 The Legislature finds and declares all of the following:
(a) California needs to greatly expand its hydrogen production capacity to meet the needs of a growing fleet of fuel cell electric vehicles and to reduce the costs of hydrogen fuel and renewable low-carbon fuels.
(b) Currently, most commercially available hydrogen is produced by steam-methane reforming, which is a process through which methane, a potent greenhouse gas and fossil fuel itself, reacts with steam under pressure in the presence of a catalyst to produce hydrogen, carbon monoxide, and carbon dioxide. Each kilogram of hydrogen produced by steam-methane reforming is associated with approximately nine kilograms of carbon dioxide equivalent emissions.
(c) When hydrogen is instead produced with zero-emission photovoltaics, the emissions profile of hydrogen is much lower. As an emerging technology, however, the development of commercial-scale hydrogen production facilities using zero-emission photovoltaics is prohibitively expensive. As such, there is a need for state policy to aid in the commercialization of hydrogen production.
(d) The state’s Cap-and-Trade Program, which is administered by the State Air Resources Board, is a key element of the state’s strategy to reduce greenhouse gas emissions. The program generates billions of dollars in revenue for the state through the sale of greenhouse gas allowances. These funds are then appropriated by the Legislature for a variety of purposes to reduce greenhouse gas emissions.
(e) Under the current Cap-and-Trade Program regulations, the state board annually allocates greenhouse gas allowances to industrial facilities for a portion of their greenhouse gases to offset program compliance costs.
(f) Expanding the use of direct allocation of greenhouse gas allowances to industrial facilities to incentivize low-carbon technologies can play a significant role in reducing the state’s greenhouse gas emissions.
(g) It is the intent of the Legislature to augment the current Cap-and-Trade Program to help bolster the production of green hydrogen by utilizing the greenhouse gas allowances directly allocated to large industrial sources, which would help create economies of scale for zero-emission photovoltaic hydrogen generation technologies without the need for legislative appropriation.

SEC. 2.

 Section 38572 is added to the Health and Safety Code, to read:

38572.
 (a) For purposes of this section, the following terms have the following meanings:
(1) “Allowance” has the same meaning as set forth in subdivision (a) of Section 95802 of Title 17 of the California Code of Regulations.
(2) “Cap-and-Trade Program” means the market-based compliance mechanism developed by the state board pursuant to this part.

(2)

(3) “Cap-and-Trade Program regulations” means the regulations adopted by the state board pursuant to Section 38562 and that are set forth in Article 5 (commencing with Section 95801) of Subchapter 10 of Chapter 1 of Division 3 of Title 17 of the California Code of Regulations.

(3)

(4) “Compliance period” has the same meaning as set forth in subdivision (a) of Section 95802 of Title 17 of the California Code of Regulations.

(4)

(5) “Green hydrogen” has the same meaning as “green electrolytic hydrogen” set forth in Section 400.2 of the Public Utilities Code.
(b) On or before December 1, 2023, the state board shall develop and implement a do both of the following:
(1) Consider developing and implementing a Green Hydrogen Credit Program to accelerate the deployment of green hydrogen production at large industrial facilities and to promote the transition to a carbon-free economy.
(2) Determine whether a Green Hydrogen Credit Program would be an effective and appropriate approach to using the Cap-and-Trade Program to incentivize green hydrogen production.
(c) In developing the If the state board determines, pursuant to subdivision (b), that a Green Hydrogen Credit Program pursuant to subdivision (b), would be effective and appropriate, the state board shall develop a Green Hydrogen Credit Program and shall do both of the following:
(1) Review and revise the Cap-and-Trade Program regulations to provide industrial facilities that produce green hydrogen with an additional greenhouse gas allowance of 10 tons for every metric ton of green hydrogen produced during a compliance period.
(2) Develop and adopt any new regulations deemed necessary by the state board to develop and implement the Green Hydrogen Credit Program.
(d) In developing the a Green Hydrogen Credit Program, Program pursuant to subdivision (c), the state board may adopt a declining greenhouse gas allowance allocation schedule through December 31, 2030.
(e) The state board shall comply with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) in revising and adopting regulations pursuant to this section.