The High Potential of Low-Carbon Fuel Policy

By Flavio Coppola
July 24, 2014

Image courtesy of Flickr user Kim Seng.

In late June, the Supreme Court declined to hear a case concerning whether California’s Low-Carbon Fuel Standard (LCFS) program discriminated against fuels produced out of state, allowing the program to continue functioning unhindered. The decision received little media attention, but it is of crucial importance for California’s climate action goals. The LCFS is one of the most progressive and thorough fuel regulation policies in the world. While it has the potential to make an enduring impact on the fuel industry and reduce carbon emissions, it is not well understood.

Established in 2007 and administered by the California Air Resources Board (CARB), the program was designed to support the 2020 greenhouse gas reduction goals set by the California Global Warming Solutions Act (AB 32). LCFS measures the carbon-equivalent emissions per unit of energy for all transportation fuels in the state and sets maximum thresholds for each year until 2020, the target date for California to reduce carbon intensity by 10 percent from 2010 levels. It assesses the complete life cycle of a fuel, “from well to wheels” — or “seed to wheels” in the case of biofuels, which are produced from crops. CARB bases its assessment of a fuel’s life cycle on the carbon-equivalent emissions from the production, transport and use of a fuel. For comparison, gasoline and diesel from crude oil refined in California have a carbon intensity of 95.86 and 94.71 gCO2e/MJ, respectively. Ethanol from Brazilian sugarcane, a gasoline substitute, scores a low 73.40.

All providers of fuel in California are subject to the LCFS and are required to supply a mix of transportation fuels that does not exceed the threshold. An emissions trading system complements the threshold, so that fuel providers that do not meet the requirement can comply by buying credits from other providers. California’s cap-and-trade system, which is meant to bring substantial revenue to the state through the sale of emission permits, will not include the LCFS before 2015. The details of the integration have not yet been settled, but it is likely that LCFS credits will be exportable to other programs under cap and trade, while credits from these programs will not be importable into the LCFS. CARB opposes a full integration because of the differences in the methodologies used by each program to assess emissions.

The program’s most prominent goal is to contribute to approximately 10 percent of the total greenhouse gas emissions reduction mandated by AB 32 by 2020. Concurrently, the LCFS is meant to reduce California’s reliance on petroleum, to create a market for clean transportation technology and to stimulate the production and use of alternative, low-carbon fuels in the state. Some of the effects of the LCFS are already visible: It has contributed, in combination with other policies, to make California one of the leading states for biodiesel production.

As part of the life cycle assessment of fuels provided in California, CARB includes a valuation of “indirect land use changes.” These occur when biofuels are produced on agricultural land currently yielding food and feed crops. As the demand for food and feed remains, these crops have to be cultivated somewhere else, leading in some cases to changes in land use. These changes can release a substantial amount of carbon dioxide, which must be taken into consideration to estimate the carbon intensity of a biofuel. For example, the increase in production of biodiesel from soybean culture in Brazil has led to deforestation in the Amazon, and thus considerable carbon emissions.

The methodology used to estimate carbon emissions due to indirect land use changes is particularly complex and calls for significant improvement: This constitutes the LCFS’s main weakness. CARB has assigned a relatively high carbon intensity score to crop-based biofuels due to indirect land use changes, which sparked discontent from biofuel producers of the Midwest and some members of the scientific community. CARB has pledged to revise carbon intensity assessments regularly as new technologies and methodologies emerge and is expected to improve its assessment of indirect land use changes in the coming years.

Climate change adaptation and mitigation policies are a clear priority for SPUR. In the Bay Area, the transportation sector creates the most greenhouse gas emissions. Taking action to reduce them is our responsibility, but it’s also an opportunity to consolidate a competitive advantage.

According to CARB’s compliance schedule, carbon intensity reductions will be greater each year, and the majority of them will occur after 2015. CARB set this schedule in order to allow the transportation and fuel industries time to develop more efficient vehicles and alternative low-carbon fuels. If we are to meet the goal of a 10 percent reduction in fuel carbon intensity by 2020, it is crucial that these technologies mature and are implemented in the coming years, so that greater reductions in carbon intensity can be realized.

The Bay Area’s thriving culture of innovation has all the potential to take up the challenge set by CARB and develop key technologies and alternative fuels that will enable providers to comply. The LCFS’s reach in California is broad, and the attention it receives at the federal and international levels is growing. Its implementation represents a remarkable occasion for the Bay Area to strengthen its innovative edge and support a trailblazing mitigation policy for the benefit of all Californians.