Big Biofuel Implications In LCFS Readoption

UNICA's Leticia Phillips outlines proposed major revisions to California’s Low Carbon Fuel Standard and the Brazilian Sugarcane Industry Association's take on them.
By Leticia Phillips | March 11, 2015

California’s Low Carbon Fuel Standard changed global biofuels markets forever in 2011 when it became the first market-based approach to lowering transportation fuel emissions. By mandating fuel producers reduce carbon intensity (CI) 10 percent from a 1990 baseline by 2020, the LCFS displaced roughly 2.14 billion gallons of gasoline and 77 million gallon-equivalents of diesel with low-carbon transportation fuels through 2013, according to the University of California-Davis’ Institute of Transportation.

But California’s Air Resources Board is proposing major LCFS system revisions and their outcome will impact ethanol industry fortunes. So how could re-adoption play out, what’s changing and what can ethanol producers expect as a result? LCFS readoption began in 2013 when the California Court of Appeals ordered CARB to remedy legal defects from the initial adoption process. CARB proposed amendments, solicited comments, held a public hearing and a re-adoption vote may occur as soon as summer 2015.

While the details won’t be known until the final vote, the outcome will impact America’s largest single transportation fuels market, as well as states like Oregon and Washington, which are launching their own LCFS. Proposed amendments have focused on three major biofuel-related topics:

Revised CI targets:  Overall, transportation fuel CI scores have only fallen around 1 percent since 2011, meaning annual CI reduction goals will likely need upward curve smoothing for 2016-2020, depending on projected fuel availability. CARB may also increase its post-2020 CI targets above 10 percent.

CI regulatory changes currently center on lifecycle emissions, the overall well to wheel emissions footprint of transportation fuel. CARB proposed updating their model for calculating lifecycle CI values to a newer one based on Argonne National Laboratory’s GREET model.

CARB opted to use average electricity mix for production facilities as part of biofuels life-cycle emissions instead of the marginal electricity mix. While this tweak would empower U.S.-based facilities to more accurately calculate their CI through region-specific power supplies, UNICA has urged CARB to reconsider this change, as it does not include emissions reductions from electricity cogeneration at Brazil’s sugarcane mills.

Indirect land use change formula improvements were also proposed by CARB to better measure emissions associated with the conversion of land to agricultural use for biofuel production. UNICA has supported this proposal, as it will allow more accurate identification of how pastures and forests respond to cropland expansion and more realistically represents crop expansion dynamics in regions with large pasture and forest stocks, but we have urged CARB to capture double-crop systems when measuring crop production expansion.

Some stakeholders have warned new CI values will prevent sufficient biofuel supplies from reaching market. CARB projects corn ethanol supplies will decrease as CI standards tighten toward 2020, but sugarcane ethanol volumes and electric vehicles are projected to fill the gap.

Two-tiered biofuels system:  CARB is proposing a two-tiered CI system for fuel pathways and producer facility certification and registration. Under this system, first-generation biofuels like corn and sugarcane ethanol are placed in tier one and next-generation advanced biofuels in tier two, with any fuel using innovative production methods falling into tier two. 

Cost-containment provision:  Several revisions arose during stakeholder workshops and were added to the re-adoption proposal, including two cost-containment approaches to increase market certainty about the maximum cost of compliance, provide investment and production incentives, and create additional compliance options.

Under the first approach, a credit clearance market would allow LCFS participants to carry credit deficits into the next compliance period.  All required credits must be purchased during a credit clearance period at the end of compliance years where participants with excess credits sell their supply in a reverse auction format. CARB also proposed a price cap starting at $200 per credit in 2016, indexed to inflation.

The second proposed approach would create a credit window approach where LCFS participants who are unable to purchase sufficient credits on the open market may buy compliance-only credits from CARB at set prices, with proceeds going toward the California Air Pollution Control Fund.

Regardless of the outcome, CARB’s proposed revisions are a step forward for clean renewable fuels like sugarcane ethanol. As LCFS re-adoption plays out over 2015, Brazil remains committed to help reduce transportation fuel emissions through reliable biofuel supplies, even as fuel demand rises and carbon intensities fall.

Author: Leticia Phillips
North American Representative,
Brazilian Sugarcane Industry Association, UNICA
202-506-5299
leticia@unica.com.br