Ethanol producers need to reduce their CI score—and quickly

By Natasha Beilstein and Lei Zhu, EcoEngineers | October 31, 2019

As the value of the California Low Carbon Fuel Standard credit lingers around $200 per credit and the Renewable Fuel Standard renewable identification number (RIN) prices are ever-reducing, the importance of carbon intensity (CI) is more relevant than ever before. Participation in the LCFS relies heavily on the CI of a renewable fuel, as it dictates the amount of credits generated. Simply put, the lower the CI score, the more credits are generated. Depending on the fuel the renewable fuel is looking to replace—either gasoline or diesel—the CI score needed to participate in the market can vary.

It is intrinsic to the design of the LCFS that suppliers are expected to take measures to increase the supply of LCFS credits if confronted with a shortfall against compliance targets. When looking at ethanol as a replacement for gasoline, it is imperative that the CI of ethanol reduces with the compliance curve as mandated in the regulation. As the CI for gasoline is required to decrease, the CI of ethanol will need to decrease as well. This analysis will show the necessary reductions in CI score needed by ethanol to remain competitive in the LCFS market; conversely, it is also the CI needed by ethanol to make credit markets whole since ethanol is, by volume, the most dominant gasoline alternative available in the market.

In 2018, 1.12 billion gasoline gallon equivalent of ethanol was consumed in California (about 12 percent blend level). It is unlikely that the volume of ethanol as a percentage of gasoline consumed will fall in the near future due to ethanol’s value as an oxygenate. Considering this significant role ethanol plays in the transportation fuel pool, it is imperative to seriously discuss the value of lowering its CI to levels that will make the California Air Resources Board’s LCFS goals achievable.

EcoEngineers modeled two scenarios for 2022: a Steady Progress Scenario where deployment of non-ethanol credit generation options develops at a baseline rate that matches recent historical trends; and a High-Performance Scenario where several technologies, such as electricity and RNG, develop more quickly than in the Steady Progress case and lead to a higher supply of low CI non-ethanol fuels. Additionally, there is lower petroleum fuel use in the High-Performance Scenario leading to lower deficit generation. In both cases, the blending ratio of ethanol is held constant at 11.7 percent calculated based on the 2018 data.

Due to higher petroleum use and lower low-carbon fuel adoption rates, the Steady Progress Scenario results in a larger deficit in 2022 relative to the High-Performance Scenario. The larger deficit puts greater pressure on ethanol to lower its CI and generate more credits to make the credit markets whole. Therefore, an average ethanol CI of 26.51 will be need in 2022 to make credit markets whole under the Steady Progress Scenario. In the High-Performance Scenario, there is more credit generation due to higher supply of low-carbon, non-ethanol gasoline alternatives, and the pressure on ethanol is less. Ethanol with an average CI of 63.6 will be needed to make credit markets whole.

A more aggressive growth scenario for low-carbon, non-ethanol fuels is possible in the short term, but it is difficult to believe. Any believable scenario in 2022 must acknowledge the contribution of low-CI ethanol or the LCFS credit markets will experience year over year of imbalance.

The modeling presented in this analysis is based on an updated version of the low carbon fuel supply model documented by Malins et al. (2015)*.  The historical LCFS data (2011-2018) is from the data dashboard released by CARB. The model used in this report is a credit supply model, detailing the number of LCFS credits and the level of emissions reduction that can be generated given certain assumptions about petroleum consumption, the availability of other alternative fuel options, and carbon intensity reduction technologies.

Understanding the Baseline

The scenarios for the low carbon fuel supply to California are analyzed for 2022 with the rates of credit generation shown in each scenario. The rates of credit generation shown in each scenario are implicitly based on an assumption that the LCFS credit value remains significant (close to $200 per MT of CO2e) throughout the period considered. These scenarios should therefore rather be understood as a characterization of the number of credits that could be generated under certain technology and deployment assumptions.


2011-2018 Performance of the low carbon fuel standards

The following figures show the desired percent reduction in the carbon intensity (CI) of California’s transportation fuel pool. The LCFS target is to achieve a 20 percent reduction by 2030 by setting a declining annual target, or compliance standard. A 10 percent reduction by 2022 means a weighted average CI of 26 for the whole transportation renewable fuel pool in California, while the weighted average CI for 2018 is 46.

Figure 1: Percent Reduction in Carbon Intensity
Source: California Air Resources Board
 

 

The figure below provides perspective on the performance of actual quantities of fuel consumed in California. Each sphere represents a certified fuel pathway; the size of the sphere represents the reported volume of the fuel in 2018, while its position on the horizontal axis indicates the CI of that fuel. Ethanol, with an average CI of 68.6 g CO2e/MJ made up 92.1 percent of the gasoline substitutes by volume and 67.1 percent of the credits generated for the gasoline pool. The remaining 7.9 percent of volume and 32.9 percent of credits was made up by electricity and hydrogen.

 

Figure 2: Volume-weighted Average Carbon Intensity by Fuel Type
Source:
California Air Resources Board

 

 



Table 1: Baseline Scenario – 2018 LCFS Credits and Deficits Summary

 

Figure 3: Alternative Fuel Volume Projection - Based on 2011-2018 data

Source: EcoEngineers
 

 

Scenario Analysis

Two primary scenarios of 2022 are analyzed and presented. In the first, the Steady Progress Scenario, deployment of the various credit generation options develops at a baseline rate that is considered to reflect a reasonable expectation given the current state of technology development and incentives available to operators in California and in the U.S. In the second, High-Performance Scenario, it is assumed that several technologies develop more quickly than in the Steady Progress case and lead to a lower average CI for non-ethanol fuels; thus, more credit generation would be achievable. In the next section, the two scenarios are further detailed.

 

Steady Progress Scenario – 2022

Assumptions: The Steady Progress Scenario assumes development of alternative and renewable fuel supplies that are generally based on moderate projections from existing literature and targets. We do not assume that any single pathway achieves at the higher end of its potential range. Given that some credit generation options, notably electric vehicles, can be expected to increase non-linearly especially coming to 2030.  It is assumed that mass balance accounting allows all-natural gas supplied for transportation in California to be counted as renewable, utilizing a combination of in-state and out-of-state renewable natural gas supplies.

In this scenario, total volume consumption of petroleum in 2022 stays the same as that in 2018. Since there is no clear plan for the higher ethanol blends to be retailed in the California market, the 2018 ethanol blend level is kept constant in the Steady Progress Scenario.

Projected volume of RNG, biodiesel, renewable diesel and electricity are based on 2011-2018 data growth rate using the regression model. We assumed the CI reduction for RNG, biodiesel, renewable diesel, and electricity delivered by 2022 is 20 percent compared to 2018 baseline.

 

Table 2: Steady Progress Scenario Analysis

Results: Under the 2022 Steady Progress Scenario, the California transportation market generates over 20 million MT deficits, A 73 percent increase compared to 2018.  The LCFS target is to achieve a 10 percent reduction by 2022, which means an average CI of 26 for the whole transportation renewable fuel pool.

As the 20 percent CI reduction has been applied to the other renewable fuel types, ethanol contributes up to 89.7 percent of the gasoline substitutes by volume and 78.6 percent of the credits in 2022; however, the average CI needed is 25.9 to achieve the goals of this scenario.       

 

High-Performance Scenario – 2022

Assumptions: The Steady Progress Scenario assumes development of alternative and renewable fuel supplies that are generally based on moderate projections from existing literature and targets. The accelerated technology deployment assumptions allow for significantly larger carbon intensity reductions to be delivered by 2022 than in the Steady Progress Scenario. Specifically, the High-Performance Scenario differs from Steady Progress by having more aggressive deployment assumptions on cellulosic fuels, passenger ZEVs, heavy duty natural gas vehicles, and on carbon capture at ethanol refineries and green hydrogen use at petroleum refineries.

In this scenario, the percentage blend rate of ethanol stays the same as that in 2018, but petroleum consumption decreases at an annual average rate of 5 percent in order to stay on track with the governor’s goal of cutting petroleum use in half by 2030 (SB350). The projected 2022 ethanol volume is calculated using the ethanol blending ratio of 11.7 percent from 2018 data.

Projected volumes of RNG, biodiesel, renewable diesel, and electricity are based on 2011-2018 data growth rate using the regression model. This scenario represents the case in which the supply of LCFS credits is significantly enhanced by accelerated technology deployment (as compared to Steady Progress) across several credit generation options simultaneously. We assumed the average CI reduction for RNG, biodiesel, renewable diesel, and electricity delivered in 2022 is 50 percent compared to the 2018 baseline.

 

Table 3: High-Performance Scenario Analysis

Results: Under the 2022 High-Performance Scenario, the California transportation market generates over 16 million MT deficits, A 40 percent Increase compared to 2018. The LCFS target is to achieve a 10 percent reduction by 2022, which means an average CI of 26 for the whole transportation renewable fuel pool.

As 50 percent CI reductions have been applied to the other renewable fuel types, ethanol’s contribution drops to 87.5 percent of the gasoline substitutes by volume and 50.8 percent of the credits in 2022; In that case, there is less pressure on it to deliver credits due to faster commercialization of electricity and hydrogen-based fuels. Therefore, the average CI expected from ethanol is 63.6 gCO2e/MJ to achieve the goals of this scenario.

Conclusions

In order to achieve the goals of the LCFS program, CARB is placing a big bet on rapid commercialization of new technologies in electricity and hydrogen and the deployment of ultralow-carbon RNG. While these are laudable goals, they are risky. Ethanol is currently 12 percent of the gasoline fuel mix and is expected to stay in that range for the foreseeable future. California would benefit from hedging its bet on new technologies by allowing lower carbon ethanol to be deployed. Currently, the best approach for the state is to include carbon reduction from farm practices to be counted toward the reduction of ethanol CI. Farm practices make up 28.38 CI points of the overall ethanol CI and is currently a fixed input in the CI model. Allowing ethanol producers to lower this and claim these credits would result in real reductions in emissions from agriculture and a real reduction in ethanol CI.

Ethanol producers, in the meantime, can take action of the factors they can control. Depending on the starting CI score of an ethanol facility, reaching the goal CI score of 63.6 or finding placement in an additional market that incentivizes innovation may be possible through implementation of the below items:

  • Upgrade from CA-GREET 2.0 to CA-GREET 3.0: There are improvements in the latest model of CA-GREET, including improvements to the electricity grid, which has led to 3-5 CI point reductions just for updating models used.  
  • Utilize renewable energy: Energy use is a contributor to CI, and the implementation of renewable energy at an ethanol facility can result in a reduction in CI. For example, if there is a source of renewable natural gas (RNG) nearby, the RNG can be used as process energy to lower the CI.
  • Implement cellulosic: Despite USEPA not approving cellulosic ethanol registrations, there are more ethanol producers electing to implement cellulosic ethanol into their production. This can yield a significantly lower CI fuel that is finding placement in the California renewable fuel market.
  • Consider other markets: There are other markets that incentivize low CI fuels, like CI, but are still accepting fuels with higher CI scores. Even though the Oregon and British Columbia markets may have a lower capacity for fuels, they are newer and more open to fuels with higher CI scores.



Natasha Beilstein is a Regulatory Consultant at EcoEngineers, specializing in the LCFS and Oregon Clean Fuels Program. Ms. Beilstein’s background includes regulatory consulting and program management for solid waste management related to California municipalities and environmental planning for transportation projects under the California Environmental Quality Act and National Environmental Protection Act. At EcoEngineers, Ms. Beilstein manages the LCFS pathway applications consulting. During 2019, Ms. Beilstein has managed over 20 pathways to certification and consulted with clients on LCFS compliance needs. Contact Ms. Beilstein at nbeilstein@ecoengineers.us or 515-985-1276.

Dr. Lei Zhu is a Regulatory Consultant at EcoEngineers. He holds over 6 years of research and development experience in biomass, agricultural/forest products, oil/gas refinery and renewable energy. He has authored/co-authored over 20 peer-reviewed research papers and spoke at major in-house research and technology international conferences. Dr. Zhu’s work continues to apply the scientific principles, analytical skills and critical thinking towards innovative and customized solutions to advance the development and growth of the biofuels industry. Contact Dr. Zhu at lzhu@ecoengineers.us or 515-985-1279.