California Adopts Low Carbon Fuel Standard

April 23, 2009 07:00 PM

via a special arrangement with Informa Economics, Inc.

Controversial regulation worries biofuel proponents

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The California Air Resources Board (CARB) on Thursday adopted a regulation that will implement Governor Arnold Schwarzenegger's Low Carbon Fuel Standard (LCFS) calling for the reduction of greenhouse gas emissions from California's transportation fuels by ten percent by 2020. The CARB's low carbon fuel standard counts the greenhouse gas impact of indirect land use changes form biofuel production, despite concerns from the biofuel industry.

Air board Chairwoman Mary Nichols said the rule will create a global framework for automotive fuels. The board approved the proposal, 9-1. "Now, finally, we are creating the opportunity for other types of transportation fuels to compete on a level playing field," Nichols said.

Background: The regulation requires, beginning in 2011, that manufacturers start cutting the carbon intensity of fuel sold in the state. The standard applies to a manufacturer's overall mix of fuel and is not a per-gallon requirement. The regulation takes effect incrementally but increases significantly beginning in 2015. Manufacturers can meet the standard by selling a mix of fuels, selling all low-carbon fuels or using credits that can be both bought and earned from the state if they exceed the limitations. Alternative fuels include electricity, natural gas, biofuel from food products and fuel from algae, among others.

A statement said the regulation will boost the market for alternative-fuel vehicles and achieve 16 million metric tons of greenhouse gas emission reductions by 2020. According to CARB analyses, to produce the more than 1.5 billion gallons of biofuels needed, over 25 new biofuel facilities will have to be built and will create more than 3,000 new jobs, mostly in the state's rural areas. Production of fuels within the state will also keep consumer dollars local by reducing the need to make fuel purchases from beyond its borders.

Carbon intensity... The regulation requires providers, refiners, importers and blenders to ensure that the fuels they provide for the California market meet an average declining standard of “carbon intensity”. This is established by determining the sum of greenhouse gas emissions associated with the production, transportation and consumption of a fuel, also referred to as the fuel pathway.

Gov. Schwarzenegger praised the regulation immediately after the vote. "California's first-in-the-world low carbon fuel standard will not only reduce global warming pollution - it will reward innovation, expand consumer choice and encourage the private investment we need to transform our energy infrastructure," Schwarzenegger said in a statement. The governor initiated the process for the standard with an executive order in 2007.

"The new standard means we can begin to break our century-old dependence on petroleum and provide California with greater energy security," Nichols said. "The drive to force the market toward greater use of alternative fuels will be a boon to the state's economy and public health - it reduces air pollution, creates new jobs and continues California's leadership in the fight against global warming."

Nichols described the new regulation as a “cradle-to-grave” approach to curb greenhouse gases, meaning the greenhouse gas content of every aspect of fuel – its production, distribution and combustion -- is taken into account. For example, the emissions from machinery harvesting corn, the trucks transporting the crop, the processing plants, the transport of the fuel, the burning in an engine – all would be considered. Also considered would be the emissions associated with fuel-crop production.

Environmentalists note that while ethanol is clean-burning when measured at the tailpipe, the production and distribution of ethanol entails emissions of climate-changing greenhouse gases. That means regulators must consider Nichols’ “cradle-to-grave life cycle” of fuels, including ethanol, and other biofuels, in order to assess their true impact on the atmosphere. But others opposed that viewpoint.

Importantly, the standard includes rules for adding the greenhouse gas emissions that could come from land use changes driven by increasing the cultivation of crops to make biofuel. Scientists who support measuring such land use changes -- such as emissions that come from cutting down Amazon rainforest to grow crops to replace those that will be made into biofuel in the U.S. -- say they are real and must be measured. But biofuel backers say including those impacts will saddle biofuels with a carbon emission measurement that will make them unattractive to the refiners that blend them into gasoline and diesel fuel. Such measurements should not be included unless the indirect impacts of other fuels are included as well, they say.

Corn-based ethanol proponents criticized the regulation because it counts -- as part of the carbon intensity -- the indirect effects of manufacturing the fuel. With corn-based ethanol, that means counting the impact of creating new crop land when existing land is converted to growing corn for fuel instead of food. The board staff determined that other fuels are not subject to that evaluation, which puts corn-based ethanol grown in the Midwest at a higher carbon intensity level than gasoline made in California.

General Wesley Clark, co-chairman of biofuels group Growth Energy, in a letter to the board, said, "Adopting a [regulation] that selectively applies one standard for biofuels and another for all other fuels, including gasoline, is not equitable, would cripple the ethanol industry and all but guarantee America's continued dependence on fossil fuels.” Clark said the board could consider the war in Iraq as an indirect effect of petroleum. "You have to take a broader look at the effects," Clark said. "The model doesn't reflect common sense."

Nichols replied to Clark in a letter that pledged to research land use impact of all transportation fuels and use future U.S. and European Union land use standards to adapt the rule in coming years, among other concessions, Reuters reported Thursday. Nichols called the debate over the issue "a rehearsal for what we're likely to hear in Washington," as Congress debates a proposal to cut greenhouse gases. The board intends to review the indirect land-use effects of various fuels in 2011. The board also agreed during Thursday's hearing to review the science behind the indirect land use calculations.

The following is Nichols' letter to General Clark:

Dear General Clark:

Over the past few weeks I have heard a great deal of
concern, both directly from your organization through the
rulemaking process and indirectly through media reports, that
ARB is dealing unfairly with biofuels, especially corn ethanol,
in the evaluation of those fuels for voluntary credit in the
proposed Low Carbon Fuel Standard.

I wanted to let you know that ARB firmly believes that corn
ethanol will play an important role in helping California
achieve the goals of the LCFS. The federal RFS already requires significant volumes of corn ethanol to be blended into gasoline and the quantity of corn ethanol in California is expected to reach nearly 2 billion gallons in 2010. We expect the current generation of corn ethanol fuels to play a significant role well into the next decade. The LCFS as currently proposed will drive investment toward even cleaner low-carbon corn ethanol, increasing its market share over time. Our staff estimates that quantities of clean corn ethanol will more than triple in California by 2020.

We are well aware that not all feed stocks and production
processes for ethanol are the same. For that reason, ARB staff
conducted an extensive review of eleven separate pathways that
cover the full range of current United States cultivation and
processing for this important biofuel. This review indicates
that seven of those pathways produce significantly less
greenhouse gases than baseline gasoline, thereby assuring that
they will play a role in reaching the standard.

The LCFS supports the market for corn ethanol in California
over the next decade at least. In the next few years, based on
representations from the renewable fuels industry and others,
we expect the market to shift to lower carbon biofuels produced
from new materials using advanced production technologies.
I also wanted to make you aware that I am asking the Board to
take the following three additional steps to ensure that
low-carbon biofuels, including low-carbon corn ethanol can
continue to contribute to California's economy, and in helping
fuel suppliers reach the standard.

1. Because of the critical importance to the industry and the climate, the Board will commit to an ongoing investigation including input from outside experts to evaluate the land use and other indirect effect of all transportation fuels. For biofuels, this will include a consideration of agricultural yield improvements, coproduct credits, land emission factors, food price elasticity, and other relevant factors. The results
of this investigation and recommended changes to the rule will be presented to the Board on or before December, 2011.

2. As part of the federal Renewable Fuels Standard, the USEPA has been working on evaluating life-cycle emissions for biofuels including land use emissions and has a rule pending at OMB. Additionally, the European Commission is committed to addressing this issue by December, 2010. ARB will work with these other agencies to harmonize where possible the data, modeling and values used for life-cycle analysis and land use

3. We are expanding upon an approach within the rule which allows suppliers of alternative fuels, including biofuels, to provide data and information to certify their feedstocks and fuel production processes. The LCFS as written allows for all
fuel producers to certify their specific pathway including a demonstration of innovative agricultural practices that can reduce their life cycle emissions including their impact on land use change. The Board will also commit to establishing criteria and a list of specific biofuel feedstocks that are expected to have no or inherently negligible land use effects
on carbon intensity by December 2009.

Please be assured that the Air Resources Board intends to
continue to work with industry to ensure that corn ethanol,
especially when produced from the new low-carbon pathways your industry is working on now, continues to play an important role in helping to address climate change and contributing to the energy security and economy of both California and the nation.


Mary D. Nichols, Chairman
California Air Resources Board


Jeff Broin, CEO of ethanol maker POET said, "The ethanol industry has made tremendous strides in not only helping our environment, but reducing our reliance on foreign oil and helping our nation’s economy. CARB should refrain from derailing those benefits with a well-intentioned but significantly flawed policy"

Broin said "POET is not requesting special preference for our products. We are simply requesting the level playing field promised as part of the LCFS and that CARB hold ethanol to the same carbon accounting standard as petroleum, hydrogen, electricity, and all other fuel."

Because it has an impact on how fuel crops, such as corn, are grown and harvested, the LCFS affects land-use decisions as well – a sore point with LCFS critics, as previously noted. Critics, including a critique by 135 scientists, believe the regulation may be based on inadequate research and pop science. It would encourage the development of alternative fuels, including some biofuels, hydrogen and electricity, and require conventional fuel producers to track – and reduce – the carbon in their products.

But air-quality advocates said greenhouse gases must be considered in a global context. “The key focus here is that we need to pay attention to the carbon emissions and air-quality emissions of the entire cycle. We can’t just say biofuels are good, we have to say what kind of biofuels are good. The data shows that if we want to achieve real greenhouse gas emissions, we should be looking at cellulosic grass, rice straw, not crop-based fuels,” Bonnie Holmes-Gen of the American Lung Association, said earlier. “We have to look at the pathway of the fuel – is it from a waste crop or is it from corn?”

For environmentalists and state regulators, that difference is crucial: If a fuel, such as ethanol, springs from corn, the carbon emissions associated with producing that corn – the fuel for the harvesting equipment, the fertilizer, the fuel used to generate the power for a farm, for example – must be included, they note. The carbon emissions from a waste crop – wood chips, for example – presumably would be less.

Some oil industry groups also protested the rule. California oil producers and refiners, represented by the Western States Petroleum Association trade group, have asked the board to delay a decision until more research can be done on its effects.

But groups including the Environmental Defense Fund and the Union of Concerned Scientists support the rule. "If we do not account for these emissions, the standard could result in more pollution than if we continued to rely on gasoline and diesel," Patricia Monahan, director of the Union of Concerned Scientists' (UCS) Berkeley office, said in a prepared statement. "The biofuel industry's call for 'sound science' is dishonest."

CARB's analysis. Economic mechanisms will allow the market to choose the most cost-effective clean fuels (those with the lowest carbon intensity) giving California consumers the widest variety of fuel options, CARB said. The Alternative and Renewable Fuel and Vehicle Technology Program, managed by the California Energy Commission, will provide approximately $120 million dollars per year over seven years to deploy the cleanest fuels and vehicles.

Regulators expect the new generation of fuels to come from the development of technology that uses algae, wood, agricultural waste such as straw, common invasive weeds such as switchgrass, and even from municipal solid waste. The standard is also expected to drive the availability of plug-in hybrid, battery electric and fuel-cell powered cars while promoting investment in electric charging stations and hydrogen fueling stations.
Some business leaders said the board underestimated the cost of the regulation and needed to conduct a more thorough analysis.

The air board staff concluded the standard will save Californians up to $11 billion by 2020 while critics say it could cost Californians $3.7 billion a year.

Impacts: According to the state, the LCFS will result in the replacement of 20 percent of on-road gasoline consumption with lower-carbon fuels, triple the size of the state’s renewable fuels market and place more than 7 million alternative fuel or hybrid vehicles on California’s roads – a 20-fold increase over today’s number of vehicular hybrids.

Comments: California strikes again on the regulatory front. As noted, there are wide differences of opinion on the rule's impact. But there is no uncertainty regarding the ethanol industry's assessment: the rule is unfair and will significantly impact the industry. The key now will be how many other states play follow the "leader" on California's regulatory action.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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