Carbon Counters

California’s Air Resources Board defends and reconsiders its Low Carbon Fuel Standard.
By Kris Bevill | February 15, 2011

January marked the start of California’s controversial Low Carbon Fuel Standard program, a regulatory measure designed to reduce greenhouse gas (GHG) emissions from the state’s transportation sector by 16 million metric tons in 2020. The specifics of the program are far from finalized, however. California’s Air Resources Board is currently defending its policy in lawsuits filed in both federal and civil courts while simultaneously convening its regular Expert Working Group hearings to attempt to settle contentious issues related to the policy. Most notable for ethanol producers is the issue of CARB’s calculation for indirect land use changes (ILUC) related to the production of their fuel, which initially resulted in a carbon intensity rating for ethanol that was higher than gasoline. As of late January, early effects of this highly unrealistic rating on the ethanol market in California were difficult to discern, but ethanol producers and lobby groups alike are certain that if the rating is left unchanged it could spell disaster for the industry.

Measuring Carbon

In order to calculate the total amount of emissions associated with each specific fuel, CARB devised various fuel pathways to determine the carbon intensity of each fuel. This measurement is expressed in grams of CO2 equivalent per megajoule (g CO2e/MJ) of fuel energy and is comprised of the full life-cycle measure of GHG emissions associated with the production, transport, storage and use of the fuel. Carbon intensity values are listed in a lookup table, which is then meant to be used by fuel providers to determine their compliance with carbon intensity reduction regulations. Separate pathways were created by CARB to differentiate among the various fuel types used to power facilities producing fuel as well as differences in the carbon intensity of the types of products created. Wet distillers grains, for example, has a lower carbon intensity than dried distillers grains.

The regulation allows for new pathways to be added to the lookup table as approved by CARB’s executive officer. There are two avenues available through which new pathways can be added to the table: fuel providers can file an application for a new/modified pathway or CARB staff may develop new pathways internally. While in theory this open-ended method for determining emissions levels for fuels is workable, there is one major flaw with CARB’s calculations. Five fuels are included in CARB’s lookup table—gasoline, natural gas, hydrogen, electricity and ethanol—but only ethanol was subjected to carbon values for land use change. A value of 30 g CO2e/MJ for land use change was tacked onto every pathway for domestically produced ethanol, resulting in an overall higher carbon intensity value for many of ethanol’s pathways than for gasoline.

Contentious ILUC

This contentious decision was immediately challenged by the ethanol industry and continues to be debated. Industry members are at odds with the agency over the notion of including ILUC at all, but they also believe that if ILUC considerations are required for ethanol, they should be required for all other fuels as well. Additionally, CARB’s method for calculating ILUC values is believed to be outdated and results in inflated values.

To that effect, CARB’s own Expert Working Group recommended in November that the agency update its land use change and indirect effects values as soon as possible. The group recommended that CARB employ a model developed by scientists at Purdue University that uses updated information through 2006 related to economic data, cropland pasture data, valuation of distillers dried grains and crop yields. However, the EWG warned CARB of the uncertainty related to any LUC model in its final report to the agency. “The assessment of life-cycle GHG emissions of transportation fuels is relatively new and is in a period of rapid development,” the report says. “No one model or set of models can be expected to do the ‘best job’ in performing a life-cycle assessment. This is particularly true in the case of indirect impacts of biofuels whose life-cycle GHG assessment are greatly influenced by data and assumptions regarding agricultural system response to greater biofuel demand, especially land use changes which result in changes in carbon stocks.”

The EWG also noted that CARB uses the GTAP model to estimate ILUC, which poses some limitations. The group said that while that particular model may be the correct model to score fuel over arbitrary changes in quantity, it is not as accurate as other models in analyzing the overall fuel score in response to larger market changes. In comparison, the models selected by the U.S. EPA—FAPRI and FASOM—can be used to estimate the effects and value of carbon sequestration and related policies on land use and estimate the effects biofuel markets have on agricultural trade. The group’s overall message to CARB was that using multiple models, or changing models, will undermine the stability of the regulation. Therefore, the group recommended that existing models are adapted to incorporate new information and researchers are encouraged to use the CARB’s framework of models to refine the ILUC models. CARB accepted the EWG’s recommendations and vowed to reach a conclusion regarding ILUC this spring. In the meantime, however, ethanol producers are hampered by the inclusion of ILUC values for their fuel.

Take it to Court

It’s not often that ethanol producers and oil refiners find themselves on the same side, but CARB has managed to find a way to bring the two groups together. Growth Energy, the Renewable Fuels Association and the National Petrochemical & Refiners Association are among a list of organizations that have filed legal challenges against the LCFS. Led by Growth Energy and the RFA, the basis of these challenges is that the LCFS violates the Commerce Clause of the U.S. Constitution because it regulates interstate commerce and imposes substantial burdens on producers not located in California. According to documents filed in 2009 by Growth Energy, the RFA and other plaintiffs with the County of Fresno division of California’s Superior Court, CARB made certain assumptions when forming its lookup table that negatively impact Midwest ethanol. Four of the corn ethanol fuel pathways in the lookup table assign higher carbon intensity values to Midwestern ethanol than to identical ethanol produced in California. Growth Energy, the RFA and others argue that the reasoning behind these higher values are based on factors that are entirely out of any single producer’s control. For example, Midwest corn ethanol producers are held responsible for emissions produced during the transport of their product from the plant to the end-user in California. The plaintiffs assert that this valuation unfairly favors ethanol produced in California and that CARB recognizes its actions will result in decreased demand for Midwest ethanol. “California is the largest single state market for corn ethanol in the United States,” the ethanol groups stated in a court document. “Because it will be economically impracticable for companies subject to the LCFS to continue to rely on ethanol produced from corn starch, the market for corn growers nationwide will be substantially reduced and will be subject to increased volatility.”

The NPRA, as well as the ethanol plaintiffs, point out that while the LCFS will negatively impact their industries, it will at the same time do very little to reduce emissions. “The fuel prohibited from use in California will simply be used elsewhere, which will result in increasing overall GHG emissions as a result of less stringent environmental standards in places those fuels would ultimately be consumed and of increased GHG emissions from increased transportation distances,” NPRA President Charles Drevna said, following the group’s lawsuit filing in a California court.

Slow Progress

It will likely be some time before the legal battle over the LCFS reaches a conclusion. A motion filed in November by Growth Energy and the RFA to halt CARB’s implementation of the regulations was scheduled to be heard by the court on Feb. 23. In late January, sources familiar with the lawsuit expressed cautious optimism that the industry would be at least partially successful in its challenge, but declined to predict a timeline for a conclusion. In the meantime, ethanol producers have been filing amendments with CARB to register new and modified pathways for their fuel. Poet LLC, Archer Daniels Midland Co. and Green Plains Renewable Energy Inc. were among the first producers to file amendments. All of their proposed pathways were approved by CARB staff and were expected to receive final approval from the executive director in February. These amendments will reduce ethanol’s carbon intensity values for certain new pathways to below the carbon intensity value for gasoline, but until CARB fully recants its initial ILUC valuation, the default rating for ethanol remains higher than gasoline’s.

CARB says the number of pathway amendment applications it has already received is proof that the LCFS is working. The program is incentivizing producers to produce fuels with lower GHG emissions, CARB says. The agency also says that 55 percent of U.S. ethanol production capacity—7.9 billion gallons—is LCFS approved. Given that California consumed about 1.5 billion gallons of ethanol in 2010, CARB says there is more than enough LCFS-approved supply to meet the state’s demands this year and in the future. But the implications of California’s program are more far reaching than the agency lets on. Other states look to California to set policy standards and several East Coast states have already expressed interest in forming similar LCFS policies. A state policy that differentiates from federal policy also creates confusion in the marketplace and, as one source says, “throws a cloud of uncertainty over the whole biofuels area.” In agreeing to re-evaluate its ILUC model, CARB has made a step in the right direction. It’s now up to producers and industry representatives to ensure that the policy continues in a fair, science-based direction.

Author: Kris Bevill
Associate Editor, Ethanol Producer Magazine
(701) 540-6846
kbevill@bbiinternational.com