Changes afoot for low-carbon fuel standard 

Source: Debra Kahn, E&E reporter • Posted: Tuesday, January 6, 2015

California is considering an array of changes to its pioneering carbon standard for transportation fuels.

The California Air Resources Board (ARB) released an updated version of its low-carbon fuel standard (LCFS) Tuesday that envisions extending the policy through 2030 and would also ease the current annual carbon reduction targets for fuel suppliers.

The standard, in place since 2009, is intended to reduce the carbon content of fuels by 10 percent by 2020. Fuel producers and importers have to either adjust the blend of fuels they offer to reach the target or buy emissions credits in a state-created system. In addition to California, Oregon and Washington state are considering similar policies (ClimateWire, Nov. 20, 2014).

ARB’s proposal would keep the existing target of a 10 percent emissions reduction by 2020 but would ease interim targets in earlier years in favor of steeper reductions in later years. Rather than achieving a 3.5 percent reduction by 2016, for example, producers would only have to cut their emissions 2 percent. From 2018 to 2020, they would have to achieve a 5 percent reduction.

To prevent price spikes, ARB is also proposing a credit price ceiling of $200 per metric ton of emissions. Credits are currently selling for about $26 per ton, according to state figures.

“A cost containment provision that allows regulated parties to achieve compliance at a pre-determined maximum price will prevent a low-probability, but potentially high-impact, credit shortfall that would make future compliance more expensive than anticipated, and will, thus, protect regulated parties and consumers from fuel price spikes,” staff wrote in their report accompanying the proposed changes.

The question of fuel price spikes has been top of regulators’ minds lately, as California expands its cap-and-trade program this month to include transportation fuels, in addition to stationary emissions sources like manufacturers and utilities.

Oil-company-backed groups are warning that the cost of emissions permits will cause gasoline prices to shoot up, while elected officials and green groups are pushing back, touting the economic benefits of the state’s climate policies (ClimateWire, Dec. 16, 2014).

State proposes revising land-use effects

The proposed LCFS rule would also revise a controversial method of ranking fuels’ carbon emissions. ARB assigns higher carbon scores to plant-based fuels to reflect their displacement of food and other crops, an effect known as “indirect land-use change.”

ARB is proposing to adjust existing scores or assign new ones for six biofuels: corn, sorghum and sugar cane ethanol; and soy, canola and palm biodiesel. Palm-based biodiesel fares the worst, with an emissions penalty of 71.4 grams of CO2 per megajoule of energy. Soy- and canola-based biodiesel fare better, with scores of 29.1 and 14.5 g/MJ, respectively.

Sugar cane ethanol has the least impact of the biofuels, with a score of 11.8 g/MJ, far below its initial 2009 score of 46 g/MJ. Corn ethanol, as well, would see its score improve from 30 g/mJ to 19.8 g/MJ. The changes reflect updated modeling that shows ethanol has less of an effect on land conversions elsewhere than previously thought.

ARB is readopting the policy in part because of a court ruling in 2013. The California Court of Appeal ruled in favor of a suit brought by ethanol producer Poet LLC that argued that ARB improperly completed its rulemaking before finishing a state-mandated analysis of the program’s environmental effects (ClimateWire, April 4, 2013).

A separate suit from oil refiners and corn ethanol producers, citing the rule’s effect on out-of-state fuel suppliers, is still pending in the Eastern District of California, where it was remanded after the Supreme Court declined to take the case (Greenwire, June 30, 2014).

The proposal will be up for an initial vote at ARB’s Feb. 19 board meeting in Sacramento and is open for public comments through Feb. 17. If approved, the changes would take effect starting January 2016, according to ARB staff.