(Oct. 8, 2007) -- At the same time as CA Attorney General Jerry Brown petitions the U.S. Environmental Protection Agency to adopt greenhouse gas rules for ships and CA Governor Arnold Schwarzenegger rails against greenhouse gases, California taxpayers are effectively subsidizing the use of high-polluting "bunker fuel" burned by ships in CA ports by exempting it from CA sales and use tax.

The two issues aren't identical (even burning "clean" fuel creates greenhouse gases) but reducing pollution and greenhouse gas emissions are both high priorities for a number of environmental groups.

The state tax break for high-polluting bunker fuel results from industry-backed legislation advanced in 2003 by two Long Beach lawmakers -- State Senator (then-Assemblyman) Alan Lowenthal (D., LB-SP-PV) and Assemblywoman (then State-Senator) Betty Karnette (D., LB) -- at a CA taxpayer cost estimated by Sacramento in 2001 to be roughly [figures vary widely] $20-$30 million annually.

It's a law that Mary Nichols, CA Governor Arnold Schwarzenegger's chosen chair of the CA Air Resources Board, has told LBReport.com that she personally favors repealing.

"I think it would be a nice thing to repeal that legislation," Chair Nichols told LBReport.com, noting that she was expressing her personal view, not necessarily that of the Schwarzenegger administration on the matter.

Chair Nichols' comments came after her testimony at an August 9 informational hearing held by U.S. Senator Boxer (D, CA) to spotlight legislation Boxer has introduced -- the Marine Vessel Emission Reduction Act (S. 1499) -- to require oceangoing vessels visiting U.S. ports to use cleaner fuel and cleaner engines, whether they are flagged in the U.S. or elsewhere.

Similar legislation in the House (HR 2548) is backed by Congressmembers Hilda Solis (sponsor), Jane Harman, Lois Capps, Henry Waxman, Maxine Waters, Loretta Sanchez, Adam Schiff, Grace Napolitano, Howard Berman, Lucille Roybal-Allard, Diane Watson and Doris Matsui.

At Sen. Boxer's event L.A. Mayor Antonio Villaraigosa, Long Beach Mayor Bob Foster and the Executive Directors of their cities' twin ports all recited support for the federal legislation...which would curtail the use of high polluting bunker fuel in CA Ports which CA taxpayers are effectively paying for.

The state tax break results from industry-backed legislation advanced in 2003 two LB lawmakers -- State Senator (then-Assemblyman) Alan Lowenthal (D., LB-SP-PV) and Assemblywoman (then State-Senator) Betty Karnette (D., LB) -- at a CA taxpayer cost estimated by Sacramento in 2001 to be roughly [figures vary widely] $20-$30 million annually.

The story was reported by LBReport.com in October 2005 when CA Air Resources staff proposed rules to curtail the use of "bunker fuel" as threat to residents' health.

In November 2006, LB Councilwoman Gerrie Schipske publicly confronted Sen. Lowenthal about the policy at a Nov. 2006 CSULB "goods movement" conference. Sen. Lowenthal indicated he'd think about it...and nearly a year later, the tax exemption remains.

The current exemption from CA's sales and use tax for bunker fuel purchased in CA and consumed in CA waters was enacted (extending prior bunker fuel sales tax exemptions) under 2003 legislation sought by shipping interests, co-authored by two veteran LB lawmakers, backed by a LB Councilman and passed in a last-minute maneuver that avoided otherwise-required hearings and serious public discussion.

In September 2003, then-state Senator, now Assemblywoman, Betty Karnette (D, LB), with the support of then-Assemblyman, now state Senator, Alan Lowenthal (D., LB-SP-PV), used a procedure known in Sacramento as "gut and amend" to take a bill that's already passed normally required committee hearings, strip it of its language and insert entirely new language (in this case the bunker fuel sales tax exemption) before bringing it to the floor for final passage.

The recorded votes in both the state Senate and Assembly -- which LBReport.com posts below -- were nearly unanimous.

In October 2003, the Pacific Merchant Shipping Association (PMSA) applauded the legislature's action and praised then-Gov. Gray Davis (at the time facing recall) who signed the measure into law. "This legislation is good for the state of California and good for California workers," said PMSA VP John Berge in a 2003 written release, adding "The governor is to be commended for his foresight in signing a measure that will help keep our state’s maritime economy strong."

The 2003 action used SB 808 to reinstate (effective in 2004) and extend for ten years an exemption from CA sales and use tax for bunker fuel purchased by ships in CA for use outside state waters, leaving ships only required to pay sales tax on the high-polluting fuel consumed in CA waters.

Shipping interests argued that without the tax break, large ships (which can travel thousands of miles between bunkering stops) would arrange their bunkering decisions to buy the fuel outside CA. At the same time however, shipping interests sought extension of the CA tax break which had been in effect until the state legislature repealed it effective July 15, 1991.

In 1992, state lawmakers voted [AB 2396 (Elder)] to reinstate the exemption effective in 1993, and in 1998 reauthorized the exemption [AB 366 (Havice)] for five more years.

But the 1998 legislation also required the independent Legislature Analyst's Office to submit a report to the Governor and legislature on the exemption's economic impact.

That report, issued in Jan. 2001, concluded that the decline in the bunker fuel industry in CA resulted from a variety of factors. These included economic recession, reduced refining capacity in the L.A. area, elimination of the sales tax exemption for bunker fuel during 1991 and 1992, development of bunker fuel facilities elsewhere in the world, technology changes in shipping and fuel capacity of ships.

The LAO report -- which didn't address health-related economic costs and effects -- said in pertinent part:

A legislative analysis of SB 808 (as gutted-and-amended) said:

Perhaps due to the fast-track "gut and amend" maneuver, which circumvented usual hearings, there was no listed opposition.

The votes on passage were:

The bunker fuel sales tax exemption is slated to continue until 2014...unless the state legislature revisits the issue and acts to modify or repeal the current bunker fuel sales tax exemption.

In a statement opening her Aug. 9 informational hearing at the Port of L.A., Senator Boxer said in pertinent part:

...Shipping is expected to double and even triple in the next two decades as the result of global trade agreements... In Southern California, ocean-going vessels are already the largest contributor to the region’s soot-forming emissions of sulfur oxides. By 2023 they are expected to be the largest contributor to the region’s smog-forming emissions of nitrogen oxides.

Oceangoing ships are subject to international standards, but these standards require virtually no control. And our own federal government has yet to step up to the task of requiring these large polluters to make significant emission reductions...

We must stop wasting time.

With ship traffic increasing and new ships being built to meet that demand, we must set standards now so that ship builders and operators know what they need to do to clean up ship pollution.

That’s why Senator Feinstein and I introduced the Marine Vessel Emission Reduction Act to require oceangoing vessels visiting U.S. ports to use cleaner fuel and cleaner engines, whether they are flagged in the U.S. or elsewhere.

On the House side, Representatives Hilda Solis, Jane Harman, Lois Capps, Henry Waxman, Loretta Sanchez, Adam Schiff, Grace Napolitano, Howard Berman, Diane Watson, and Maxine Waters have introduced an identical bill to clean up ship pollution...I believe that it is our moral duty to protect the health of our children, people with asthma, and all the people of this community from ship and port air pollution. I am pleased to join with everyone here to find solutions to this problem.