New Study Questions Feasibility of California’s LCFS Program

Source: By Jeff Barber, OPIS • Posted: Monday, April 4, 2016

The California Low Carbon Fuel Standard’s (LCFS) goal of reducing the carbon intensity (CI) of transportation fuels 10% by 2020 may not be achievable without dramatic and rapid increases in the state’s use of renewable fuels, two Johns Hopkins University researchers said in a new report.

In a study published earlier this month in the journal Applied Energy, Adam Christensen, a post-doctorate researcher, and Ben Hobbs, a professor at Hopkins’ Department of Geography and Environmental Engineering, designed a mathematical model to test the feasibility of the LCFS and what they found may worry program proponents.

The paper said the LCFS was designed so that compliance in later years would be likely only if obligated parties — mostly oil refiners and petroleum blendstock importers — banked large numbers of carbon credits in the early years of the program when the CI standard was relatively easy to meet. That didn’t happen and by the end of 2014, obligated parties should have banked about nine times more credits than they actually did, Christensen and Hobbs said.

To make up the lost ground and generate sufficient credits at the lowest possible price, the model was tweaked to allow for biodiesel blending levels that are well above current levels (generally below 5%) and what is considered technically feasible given that many diesel equipment manufacturers will not warranty their engines beyond a 20% biodiesel blend.

By 2016, the paper said, the model said 21% of diesel in California would need to be biodiesel. In addition to what the report described as “ambitious levels” of biodiesel blending, the model, to make the program numbers work, “also wanted to blend approximately 380 million gallons of E85 by 2020, increasing up to about 1 billion gallons in 2022.”

Christensen and Hobbs said that although the model did not consider customer choice or fuel infrastructure compatibility issues, “it is quite apparent that there will need to be a dramatic shift away from petroleum fuels if compliance with the LCFS is to be maintained. This dramatic shift needs to occur in a short period of time, which casts some doubt on whether it can be accomplished.”

The model, the paper said, “shows that efficient long-term compliance with the LCFS relies on three key elements. First, obligated parties should have banked more credits in the beginning years of the program than they did in reality. Second, biodiesel blending will need to increase dramatically within a short period of time (i.e., by 2016 all diesel fuel would need to be B20). This rate of change casts doubt on whether these targets are achievable.”

Third, the paper said, the CI of biofuels entering California will need to decrease, in some cases by about 25% or more. This may be possible, but CARB would need to hasten the biofuel pathway approval process so that more low CI fuels can participate in the LCFS.”

In an interview, Christensen, who is now a post-doctorate researcher at the Wisconsin Institutes for Discovery at the University of Wisconsin, said the model “has a number of embedded assumptions across a bunch of different markets,” and it does include many of CARB’s future assumptions on fuels and CIs. Based on the data that was input, it offers predictions and “those predictions are what’s driving some of the infeasibilities in the model.”

Although decisions that happen in the marketplace may ultimately differ, Christensen said he believes the LCFS has some problems and that CARB is “up against some real challenges.”

“I think they are trying, but the shortage of credits is a sign that there are going to be implementation challenges ahead. The other side of the coin is that the LCFS policy is aspirational and may help drive investment into the production of more renewable fuels.”

While California is hoping to be able to generate more LCFS credits from other sources, such as zero-emission vehicles (ZEV), its ability to do so is still something of an open question, Christensen said. “I think [ZEVs] can make a big difference, but it’s also going to be a heavy lift because it involves a lot of additional infrastructure and a lot of mindset changes for consumers.”

A more likely short-term fix may be renewable diesel, which Christensen said doesn’t have the same blending constraints as biodiesel or ethanol and enjoys a very low CI score as long as those gallons are made from waste oils. “If the program is to survive intact, then the number of gallons of renewable diesel in California is going to have to go up significantly.”

He also said attacks on the Renewable Fuel Standard along with uncertainty over federal tax credits for biofuels have had a “cooling effect” on the industry that is not helping California’s program. “There needs to be continued confidence injected into this program both from CARB staff as well as from those outside CARB,” Christensen said, suggesting, for example, that California Gov. Jerry Brown provide “reassurance that the program is going to thrive past the written 2022 policy horizon.”