Oregon Adopts Low-Carbon Fuel Rule In Step Toward Pacific Coast Market

Source: By Curt Barry, Inside EPA • Posted: Monday, January 12, 2015

Oregon environmental officials have adopted rules to implement a low-carbon fuel standard (LCFS) in the state that, if supported by state lawmakers in legislation this year, would mark a significant step toward a West Coast low-carbon fuels market anchored by California’s existing LCFS.

While the state’s program still faces hurdles, if promulgated it would expand California’s market and provide producers of low-carbon biofuels additional support given uncertainties with EPA’s renewable fuels standard (RFS), which sets annual volumetric blend mandates for low-carbon biofuels.

The Oregon Environmental Quality Commission Jan. 7 approved rules that lay out the next phase of the Oregon Clean Fuels Program, which seeks to cut greenhouse gases (GHGs) by lowering the carbon content of the state’s transportation fuels, according to the commission.

While the rules go into effect Feb. 1, the program will not be implemented unless the state legislature approves a bill this year that extends the Clean Fuels Program, which is currently slated to sunset on Dec. 31.

“Phase 2” of the Oregon Department of Environmental Quality (DEQ) program, which requires fuel providers to reduce the carbon content of gasoline and diesel 10 percent over a 10-year period, was pursued under a directive issued by Gov. John Kitzhaber (D).

State officials estimate the rules would represent a cut of about 280 million metric tons of GHGs through 2025.

The rule will help the state make good on its commitment to create a West Coast low-carbon fuel program. California, Oregon and Washington, along with British Columbia, last year created the “Pacific Coast Collaborative,” agreeing to an “action plan” to reduce GHGs and promote clean energy.

The non-binding agreement in part commits the jurisdictions to implementing and maintaining LCFS programs in each jurisdiction.

The Oregon DEQ says on its website that there is ongoing coordination between the jurisdictions on key issues such as: availability of low-carbon fuels for the West Coast region; quantifying direct and indirect emissions over the lifecycle of fuels; development and use of a common reporting tool; and design of provisions to contain costs of implementing the standards.

“Over time, these programs may lead to an integrated West Coast market for low carbon fuels,” DEQ says.

California’s LCFS requires fuel producers to cut the carbon intensity of gasoline and diesel 10 percent by the end of 2020, though regulators are recommending that lawmakers extend the program to 2030 and require an additional 10 percent to 15 percent reduction in carbon intensity.

Washington state officials are further away in their effort to implement an LCFS, having released in late October an analysis of such a regulation in the report, “A Low Carbon Fuel Standard in Washington State.” Washington is considering an LCFS to reduce the carbon intensity of fuels 10 percent from 2012 levels by 2026, with reductions beginning in 2017 at 0.25 percent, according to the report. However, neither legislation nor regulations to implement an LCFS have been adopted in the state.

But U.S. corn ethanol-production companies are citing what they consider major flaws in California’s LCFS to challenge the adoption of similar regulations in Oregon and Washington.

Regardless of the challenges, policymakers’ efforts to advance state-level programs are likely to boost many biofuels producers, who have slowed development of new projects due to uncertainties with both EPA’s RFS and California’s LCFS. But California’s LCFS is now on a firmer legal footing and a recent report suggests that West Coast fuel markets may be a more certain bet for fuel producers than those that depend on EPA’s RFS.

“There remains some uncertainty as to how the industry will respond once EPA volumes are established,” says a recent report from Environmental Entrepreneurs (E2), a group of businesses that advocate for environmental policies. “Although some projects may never recover, we expect biofuel companies to have increased interest in West Coast LCFS markets, where the policy outlook is more certain at this time.”