Moving Stepwise Toward State Clean Fuel Standards

Source: By Susanne Retka Schill, Ethanol Producer Magazine • Posted: Tuesday, July 19, 2022

From Minnesota to Nebraska, discussions around performance-based fuel standards are bringing a broad range of stakeholders together. Progress requires coalition building and compromise.

Movement towards state clean fuel standards in the Midwest inspired by a broader regional vision continues, albeit slowly. Brian Kletscher, CEO of Highwater Ethanol and board president of the Minnesota Biofuels Association, is content with the pace. “This is one bill I’m okay with it taking its time to get done. We need to make sure it gets done right.”

The Minnesota state legislature has held hearings on the Future Fuels Act in two sessions now. “It’s not uncommon that we see bills like this take some time to work through because there’s lots of policy to be developed,” Kletscher says. Many groups are cautious about giving full support, having questions about policy language, concerns about which state agency would administer the program and uncertainty about the policy itself.

The educational effort is substantial—not only with legislators themselves who hear conflicting viewpoints, but with farm groups leery of new regulations, environmental groups suspicious of anything promoting corn ethanol and other stakeholders seeking favorable incentives.

“I would say our progress slowed somewhat in 2022 in Minnesota, but it’s the nature of trying to enact a comprehensive, significant new piece of legislation,” says Brian Jennings, CEO of the American Coalition for Ethanol. “After making really great progress in 2021, more than we should have anticipated, in 2022 the opponents sharpened their knives a bit and were more prepared.” The bill was successfully amended in the Democrat-controlled house to satisfy critics, but lacked momentum in the Republican-controlled senate. “We need to reevaluate what the senators are concerned about, what they need and want. We may have to make some changes to accommodate that,” Jennings says. “But despite the slow progress in Minnesota, I’m still very encouraged by the overall trajectory of our work in the Midwest.”

“The coalition continues to grow,” says Brendan Jordan, vice president transportation and fuels at the Great Plains Institute. “We’ve had strong support from a lot of different organizations ranging from forest products industry stakeholders interested in utilizing wood residuals for biofuels production to the auto industry, the electric vehicle sector, and strong support from the ethanol industry. We have very broad support, but it’s a big policy and it takes a few years.” There are groups, he adds, that are skeptical of anything involving ethanol, “but they also understand this is a policy that can help commercialize new biofuel crops, such as cover crops that would have substantial water quality and soil building benefits. That’s a positive, and a coalition building opportunity.”

Minnesota’s Future Fuels Act emerged from the Midwest Clean Fuels Policy Initiative’s white paper published two years ago outlining a policy framework. GPI and ACE convened a stakeholder group that spent nearly two years building consensus around the policies all could support. The coalition included biofuel proponents, electric vehicle supporters, environmentalists, automakers and more—25 organizations in all.

The white paper, “A Clean Fuels Policy for the Midwest,” proposes Midwestern states set carbon reduction goals, requiring all transportation fuels be evaluated with lifecycle carbon accounting. Those that achieve lower carbon intensity (CI) can earn carbon credits that can be purchased by fuel providers to offset fuels with high CI ratings. The program is designed to be technology neutral, supporting a portfolio of clean fuels that are compensated based on their carbon performance, without favoring or discriminating against any one fuel.

One unique feature of the Midwestern proposal is the recommendation to include farm-level CI reduction efforts in lifecycle analyses. Existing clean fuels policies like the California Low Carbon Fuel Standard (LCFS) and Oregon’s Clean Fuels Program do not currently recognize or compensate farmers for climate-smart farming practices (see “Coastal Effect” on page 38). Instead, these programs assign average values for biofuel feedstocks.

In June, the Farm Greenhouse Gas Accounting Committee, a subcommittee of the Midwestern Clean Fuels Policy Initiative, released a framework for including farm-level GHG emissions in CI accounting. With biofuel feedstocks like corn and soybeans comprising a sizable portion of biofuel emissions, incorporating farm-level emissions would provide economic incentives to growers to implement best practices. The committee called for voluntary farmer participation, laying out the principle that any carbon credit revenues should benefit farmers, feedstock processors and biofuel producers. The committee also recommended the protocol design should strike a balance between precision and cost.

A USDA-funded research effort is getting underway in South Dakota to inform the protocol development for farm-level carbon accounting. While quantifying fertilizer and fuel use, cover crops and tillage methods are fairly straightforward, determining the amount of carbon being sequestered in the soil on an annual basis is not yet solidified in scientific circles. South Dakota State University researchers will evaluate soil samples from cooperating farmers and compare the results to validate models. Another goal is to verify cost-effective, accurate data collection protocols.

Two-thirds of the $7.5 million, five-year grant is earmarked to pay farmers for adopting carbon-reduction practices such as cover crops, minimum or no-till practices and advanced nutrient management methods, working with SDSU researchers to quantify the benefits. At a January meeting in Madison, South Dakota, farmers in the counties surrounding Dakota Ethanol expressed interest in enrolling over 65,000 acres in the research program, although Jennings adds SDSU researchers believe they need only 10,000 to 20,000 acres to generate the statistically significant data required to validate soil carbon models. He expects USDA approval of the farmer payments to be finalized this summer in time for farmers to sign contracts and begin practices such as cover crops this fall and plan for practices in next year’s crops.

“The project is precisely designed to help show that farmers and farm practices are part of the solution to reducing ethanol’s carbon footprint,” Jennings says. “In a meaningful clean fuel marketplace that can generate significant economic benefit. We can use that information to talk to farmers and others in rural America that are skeptical.”

As Minnesota’s experience has demonstrated, ag sector support for a clean fuels policy isn’t automatic. There are many skeptics among commodity groups on whether clean fuel policies would be a net economic benefit or cost, Jennings says. Many also mistakenly assume California’s high gasoline prices are a result of its Low Carbon Fuel Standard. On top of that, current high fuel prices add to concerns about policies that may boost fuel cost. This summer, Jennings says, ACE will be sharing an analysis with commodity organizations and others on how clean fuels policy can result in economic benefits for farmers and others.

Multiple State Efforts
While Minnesota was the first, it isn’t the only Midwestern state to consider a clean fuels policy.
Nebraska is furthest along in considering how such a policy might look. Dawn Caldwell, executive director of Renewable Fuels Nebraska, is coordinating the effort begun a year ago. The Great Plains Institute facilitated discussions among a coalition that included biofuel proponents, environmentalists, fuel retailers, Farm Bureau and representation from Nebraska Community Energy Alliance/Electric Transportation Partners, alongside state agency representatives and other stakeholders.

The shape of Nebraska’s proposal and how closely it follows the Minnesota Future Fuels Act example is yet to be determined, Caldwell says. The group stepped back from an initial attempt to draft a bill, with the realization more discussion is needed. “Whatever we do,” she says, “there are a few agreements in the room. One, is we are not California and whatever we come up with will not be like what California has done. And we will put farmers first. How do we monetize carbon credits appropriately through the entire value chain to make this work for the farmer, the ethanol plant, the fuel retailer and the consumer? We want every segment of this to win.”

Ohio is another state in a pretty early stage of considering a clean fuels policy, Jordan says. “Were doing some modeling looking at what the economic impacts would be for the state.”  The governors in Michigan and Illinois have included clean fuels standards as part of their recommendations for their transportation sectors, he adds, although neither state has seen a stakeholder coalition emerge as yet.

Focusing on clean fuel standards becomes a natural coalition builder, says Neil Koehler. Having retired from California-headquartered Pacific Ethanol and a past chairman of the Renewable Fuels Association, Koehler is now a policy advisor representing RFA in clean fuel standard developments across the nation. “It takes time to get all the interest groups aligned, but ultimately that is the hallmark of the performance market mechanisms,” he says. “The broad coalition that supports clean fuels standards makes it a very strong policy. There were multiple legal attacks in California and I really believe the LCFS would not have succeeded if it had not been the strong coalition that stayed engaged and supportive.”

Besides the Midwestern states, Koehler points out that New Mexico came very close to passing legislation this past year and efforts in New York show promise, while the idea is percolating in other northeastern states. He believes the state efforts will be critical underpinnings for a national clean fuels standard sometime in the future. “The future is bright, but we have to keep a focus on making sure the policies stay appropriately balanced and market based,” he says. “Don’t be afraid of an approach that is truly market based with full life-cycle accounting. Yes, there will be some electrification as part of that, but biofuels and farmers perform exceptionally well.”

Jennings says Midwest coalition members need to remind themselves of the ultimate goal, which is to reduce greenhouse gases and create economic development by increasing the use of low-carbon fuels. “That doesn’t mean electricity only; it doesn’t mean ethanol only,” Jennings says.

“I think we’re going through some growing pains,” he continues. “There was a lot of enthusiasm early on, back in 2018 when ACE and Great Plains Institute began holding the stakeholder meetings and we formed the Midwest Clean Fuels Initiative. Groups and individuals seemed willing to look at the bigger picture and cast aside some of the individual hopes and dreams. We were able to develop that white paper and provide a blueprint for various states.

“Now that actual legislation has been drafted and introduced and it’s going through committee hearings, it seems like all of us have a bit forgotten about checking our idea of perfection at the door in search of making progress. We’re all trying to perfect this legislation to accommodate our own needs and wants. It’s going to take all of us working together. I’d like to see more focus on progress as opposed to what individual groups view as perfection. I’m hoping we get back to that. Because I think we’ve lost sight of that a bit.”

Caldwell’s experience in Nebraska points to the promise of coalition building: “When you put a mix of [stakeholders from] Nature Conservancy, Farm Bureau, Renewable Fuels Nebraska and a fuel retailer in the same room—and especially just a small group—you get some pretty forthright discussion,” she says. “I have not seen protectionism, I have seen problem solving. Everybody wants everybody to be successful, but it’s going to take a while to get it right.”

Author: Sue Retka Schill