California Air Resources Board Approves Landmark Low Carbon Fuel Standard

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In January of 2007, California Governor Arnold Schwarzenegger issued Executive Order S-01-07, which required that a Low Carbon Fuel Standard (LCFS) be established for the State of California. On April 23,2009, the California Air Resources Board (CARB) approved a landmark rule, following a study conducted by scientists at the University of California Berkeley and the University of California Davis to cut greenhouse gases from gasoline and diesel fuels through 2020. Ths sweeping regulation targets the carbon emissions resulting from the production and distribution of alternative fuels, including ethanol, and potentially affects the way land is used to grow fuel crops, such as corn. Before the board’s vote, ARB Chairwoman Mary Nichols described the new regulation as beyond “anything the ARB has ever done before—curbing fuels’ carbon emissions from their inception to their combustion.” Excerpts from the LCFS executive summary prepared by staff for CARB’s Board follow.

Executive Summary: In this rulemaking, the Air Resources Board (ARB/ Board) staff is proposing to reduce emissions of greenhouse gases (GHG) by lowering the carbon content of transportation fuels used in California. The regulation is referred to as the California Low Carbon Fuel Standard (LCFS). The LCFS will reduce GHG emissions from the transportation sector in California by about 16 million metric tons (MMT) in 2020. These reductions account for almost 10 percent of the total GHG emission reductions needed to achieve the State’s mandate of reducing GHG emissions to 1990 levels by 2020. In addition, the LCFS is designed to reduce California’s dependence on petroleum, create a lasting market for clean transportation technology, and stimulate the production and use of alternative, low-carbon fuels in California. Governor Schwarzenegger has identified all of these outcomes as important goals for California.

The LCFS is designed to provide a durable framework that uses market mechanisms to spur the steady introduction of lower carbon fuels. The framework establishes performance standards that fuel producers and importers must meet each year beginning in 2011. One standard is established for gasoline and the alternative fuels that can replace it. A second similar standard is set for diesel fuel and its replacements. Each standard is set to achieve an average 10 percent reduction in the carbon intensity of the statewide mix transportation fuels by 2020.

The standards are “back-loaded”; that is, there are more reductions required in the last five years, than the first five years. This schedule allows for the development of advanced fuels that are lower in carbon than today’s fuels and the penetration of plug-in hybrid electric vehicles, battery electric vehicles, fuel cell vehicles, and flexible fuel vehicles. The staff anticipates that compliance with the LCFS will be based on a combination of strategies involving lower carbon fuels and more efficient, advanced-technology vehicles.

Reformulated gasoline mixed with corn-derived ethanol at 10 percent by volume and low sulfur diesel fuel represent the baseline fuels. Lower carbon fuels may be ethanol, biodiesel, renewable diesel, or blends of these fuels with gasoline or diesel as appropriate. Compressed natural gas and liquefied natural gas also may be low carbon fuels. Hydrogen and electricity are also low carbon fuels and result in significant reductions of GHGs when used in fuel cell or electric vehicles due to significant vehicle power train efficiency improvements over conventionally-fueled vehicles. As such, these fuels are included in the LCFS as low carbon options. Other fuels may be used to meet the standards and are subject to meeting existing requirements for transportation fuels.

The LCFS framework is based on the premise that each fuel has a “lifecycle” GHG emission value that is then compared to a standard. This lifecycle analysis represents the GHG emissions associated with the production, transportation, and use of low carbon fuels in motor vehicles. The lifecycle analysis includes the direct emissions associated with producing, transporting, and using the fuels. In addition, the lifecycle analysis considers any other effects, both direct and indirect, that are caused by the change in land use or other effects. For some crop-based biofuels, the staff has identified land use changes as a significant source of additional GHG emissions. Therefore, the staff is proposing that emissions associated with land use changes be included in the carbon intensity values assigned to those fuels in the regulation. No other significant indirect effects that result in large GHG emissions have been identified that would substantially affect the LCFS framework for reducing the carbon intensity of transportation fuels.

The standards are expressed as the carbon intensity of gasoline and diesel fuel and their alternatives. Measured on a lifecycle basis, the carbon intensity represents the equivalent amount of carbon dioxide (CO2e) emitted from each stage of producing, transporting, and using the fuel in a motor vehicle. Depending on the circumstances, GHG emissions from each step can include carbon dioxide (CO2), methane, nitrous oxide (N2O), and other GHG contributors. Moreover, the overall GHG contribution from each particular step is a function of the energy that the fuel contains. Thus, carbon intensity is expressed in terms of grams of CO2 equivalent per megajoule (g CO2e/MJ).

Providers of transportation fuels (referred to as regulated parties) must demonstrate that the mix of fuels they supply meet the LCFS intensity standards for each annual compliance period. They must report all fuels provided and track the fuels’ carbon intensity through a system of “credits” and “deficits.” Credits are generated from fuels with lower carbon intensity than the standard. Deficits result from the use of fuels with higher carbon intensity than the standard. A regulated party meets its compliance obligation by ensuring that amount of credits it earns (or otherwise acquires from another party) is equal to, or greater than, the deficits it has incurred. Credits and deficits are generally determined based on the amount of fuel sold, the carbon intensity of the fuel, and the efficiency by which a vehicle converts the fuel into useable energy. The calculated metric is tons of GHG emissions. This determination is made for each year between 2011 and 2020. Credits may be banked and traded within the LCFS market to meet obligations.

The proposed regulation provides flexibility for the regulated parties. The regulation is performance-based, and fuel providers have several options. First, they may supply a mix of fuels above and below the standard that, on average, equal the required carbon intensity. Second, they can choose to only provide fuels that have lower carbon intensity than the standard. For example, they may blend low carbon ethanol into gasoline, or renewable diesel fuel in diesel fuel. Third, they may purchase credits generated by other fuel providers to offset any accumulated deficits from their own production. For example, a fuel provider may choose to purchase credits generated from another fuel provider that has banked credits from using electricity in a plug-in hybrid vehicle. Fourth, a fuel provider may bank excess credits generated in a previous year and use those credits when needed. As the objective is to ensure lower carbon intensity fuels are created and used in the California fuels market, the LCFS does not allow the use of credits, or offsets, generated from outside the transportation fuels market.

The LCFS standards established in this rulemaking will be periodically reviewed. The first formal review will occur by January 1, 2012. Additional reviews are expected to be conducted approximately every three years thereafter, or as necessary. The 2012 review will consider the status of efforts to develop low carbon fuels, the compliance schedule, updated technical information, and provide recommendations on metrics to address the sustainable production of low carbon fuels.

To achieve Governor Schwarzenegger’s long term goal or reducing GHG emissions by 80 percent by 2050, the carbon intensity of transportation fuels will need to be substantially decreased over the 2020 target of a 10 percent reduction. Therefore, the staff expects to consider targets for the 2030 timeframe in subsequent reviews of the LCFS.

Establishing the LCFS is only one of several important actions needed to reduce GHG emissions from the transportation sector. Additional actions are necessary to fully implement the motor vehicle and other transportation-related GHG measures identified in the Scoping Plan that the Board approved in December 2008. A summary of the transportation-related measures is presented in Table ES -1. The potential benefits of the LCFS have been adjusted assuming that these other measures are implemented.

In addition, the Scoping Plan also identified that, beginning in 2015, transportation fuels are to be included in the Cap and Trade Program. The ARB staff believes that the LCFS is a complementary program to any Cap and Trade Program.

VDX Editor’s Note: Some business leaders have expressed concern that CARB has underestimated the cost of the LCFS regulation and needs to conduct a more thorough analysis. CARB staff has concluded the standard will save Californians up to $11 billion by 2020; critics say it could cost Californians $3.7 billion a year.

 

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