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Low Carbon Fuel Standard Report - 2007

Designed to stimulate improvements in transportation-fuel technologies, this report is expected to become the foundation for similar initiatives.

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California trucks air conservation reduce emissions Governor Arnold Schwarzenegger commissioned the Low Carbon Fuel Standard Report in 2007 to explore how California, the country's most populous state could lower carbon emissions from fuels 10 percent by 2020.

Designed to stimulate improvements in transportation-fuel technologies, it is expected to become the foundation for similar initiatives. The standard could pertain to trucking, construction and farming vehicles. The report said there are opportunities for double benefits in this sector, such as when operators switch to electricity for freight handling or overnight truck use, which reduces emissions and air pollution.

The result is the Low Carbon Fuel Standard (LCFS), authored by Alex Farrell, director of Transportation Sustainability Research Center at the University of California at Berkeley, and Daniel Sperling, director of the Institute of Transportation Studies at University of California at Davis.

In June, the California Air Resources Board voted to begin working toward the 10 percent reduction goal, with the new standard taking effect by January of 2010.


The Low Carbon Fuel Standard (LCFS) can play a major role in reducing greenhouse gas emissions and stimulating improvements in transportation fuel technologies so that California can meet its climate policy goals.

In Part 1 of this study we evaluated the technical feasibility of achieving a 10 percent reduction in the carbon intensity (measured in gCO2e/MJ) of transportation fuels in California by 2020. We identified six scenarios based on a variety of different technologies that could meet or exceed this goal, and concluded that the goal was ambitious but attainable.

In Part 2, we examine many of the specific policy issues needed to achieve this ambitious target. Our recommendations are based on the best information we were able to gather in the time available, including consultation with many different stakeholders. The recommendations are intended to assist the California Air Resources Board, Energy Commission, and Public Utility Commission, as well as private organizations and individuals, in addressing the many complex issues involved in designing a low carbon fuel standard. Choices about specific policies and calculation of numeric values for use in regulation must, of course, be made by these regulatory agencies. The analysis we present here is only illustrative.

In the first part of their report, completed in May, the authors studied the technical feasibility of the 10 percent reduction goal. They concluded the goal was ambitious but attainable, identifying six scenarios using different technologies that could meet or exceed the goals.

"This new policy is hugely important, and has never been done before," Sperling said in a statement last week. "It will likely transform the energy industries. And the 10 percent reduction is just the beginning. We anticipate much greater reductions after 2020."

The researchers acknowledge that transforming the market will dictate major changes, new protocols and scrutiny to reduce transportation-related carbon emissions, which account for about 40 percent of all greenhouse gas emissions in the state.

Technological innovation is crucial to the success of the LCFS and to the achievement of California’s climate change goals. At the same time, imposing a new regulatory requirement will cause markets to shift (or rationalize) their existing production and sales so that improvements appear on paper to have been made, when in reality no significant change has occurred.

Farrell and Sperling suggest that modest benchmarks for reducing greenhouse gas intensity be set in early years to give the industry time to adapt, and for new technologies to be developed. Steeper requirements should be implemented in later years as innovations hit the market.

The authors recommend the standard encompass all gasoline and diesel refiners, blenders and importers would be subject to regulation. These providers would have to track and reduce the life-cycle global warming intensity of products. Blending biofuel into gasoline, buying low-carbon fuels and emissions credits, making refiners more efficient and running refineries with low-carbon energy sources all would contribute to reducing emissions.

Non-liquid fuel providers, such as electricity, natural gas and hydrogen, should be able to participate voluntarily, such as by selling emissions credits to petroleum providers. Mandatory participation should be considered if a large number of non-liquid fuel vehicles enter the market.

Specific recommendations included:

R1: Scope of the standard

For liquid fuels, the LCFS should apply to all gasoline and diesel used in California for use in transportation, including freight and off-road applications. The LCFS should also allow providers of non-liquid fuels (electricity, natural gas, propane, and hydrogen) sold in California for use in transportation to participate in the LCFS or have the associated emissions covered by another regulatory program. If the number of non-liquid-fueled vehicles grows in the future, mandatory participation in the LCFS may need to be considered.

R2: Diesel fuel

Differences in the drive train efficiencies of diesel and gasoline engines should be accounted for and heavy and light duty diesel fuels should be treated differently to prevent the possibility that unrelated increases in diesel consumption could lead to compliance without achieving the goals of the LCFS.

R3: Baseline & targets

The baseline year should be the most recent year for which data are available before the LCFS was announced. A uniform state-wide baseline should be applied to all regulated entities. We recommend a compliance path that does not require significant near-term carbon intensity reductions, in order to allow technologies to develop. If implemented through a decline in carbon intensity, the ARB must evaluate the amount of shifting of production and sales (“rationalization”) that may occur. If implemented through a technology standard in the early years, the ARB must evaluate what is an advanced biofuel and what is not. If rationalization can account for a large fraction of the 2020 goal, the target may need to be made more stringent to ensure the goals of the LCFS are met.

R4: Point of regulation

The LCFS regulation should be imposed upon entities that produce or import transportation fuel for use in California. For liquid fuels, these are refiners, blenders and importers, and the point of regulation should be the point at which finished gasoline or diesel is first manufactured or imported. For electricity and gaseous fuel providers that choose to participate in the LCFS, the regulated entities should be distributors of the fuel and the point of regulation should be the supply of electricity or fuel to the vehicle.

R5: Upstream emissions

GHG emissions from the production of fuels should be included in the LCFS.

R6: A default and opt in system for the carbon intensity of fuels

To the degree possible, values used to certify the carbon intensity (i.e., GWI) of different fuels should be based upon empirical data representative of the specific inputs and processes in each fuel’s life cycle. Pessimistic default values should be determined by state agencies for each of these inputs and processes. Fuel providers will face the option of either adopting these pessimistic values (with GWI values higher than average values) or opting in by providing sufficient data to certify a lower life cycle GWI value for a particular fuel.

R7: Trading and banking of credits

The ability of regulated firms to trade and bank credits is critical to the cost-effectiveness of the LCFS. There should be no limit on the ability of any legal entity to trade or bank (hold) LCFS credits. Compliance using banked LCFS credits is allowed with no discount or other adjustment. Borrowing should not be allowed.

R8: Compliance and penalties

Obligated parties should have the option to comply with the LCFS by paying a fee, which is different from paying a fine for non-compliance. We discuss different approaches to setting the fee level. In addition, high penalties should be imposed for willfully misreporting data or other fraudulent acts.

R9: Certification/auditing processes

Methods and protocols need to be established to verify that claimed credits are accurate. We recommend that third party auditors be used, financed through fees paid by those companies claiming credits beyond the default values.

R10: Drivetrain efficiency adjustment factors

The carbon intensity metric for the LCFS should take into account the inherent efficiency differences with which different fuels are converted into motive power. The efficiency adjustment factors associated with different fuels should ideally reflect actual vehicles on the road, and be based upon empirical data. We discuss different approaches to developing and measuring these drivetrain efficiency adjustment factors.

R11: Offsets and opt-ins

Offsets generated from within the transportation sector, such as “opt-in” reductions from marine or aviation transport, should be available as credits within the LCFS. Offsets from outside the transportation sector should not be allowed, at least in the initial years of the LCFS.

R12: Carbon capture and storage

If carbon capture and storage (CCS) technologies that are safe and adequately monitored are developed, CCS projects directly related to the supply of transportation energy should be included within the LCFS. However, CCS activities outside of the transportation sector should not count toward LCFS targets.

R13: Dealing with uncertainty in life cycle analysis

Life cycle analysis methods are an appropriate quantitative framework for the LCFS. Existing data are of sufficient quality to use life cycle methods in LCFS implementation, but a program to improve these methods should be implemented as well.

R14: Land use change

Develop a non-zero estimate of the global warming impact of direct and indirect land use change for crop-based biofuels, and use this value for the first several years of the LCFS implementation. Participate in the development of an internationally accepted methodology for accounting for land use change, and adopt this methodology following an appropriate review.

R15: Interactions with AB1493 (Pavley) GHG standards for vehicles

Keep LCFS and AB1493 separate initially but consider integration at a later date.

R16: Interactions with AB32 regulations

The design of both the LCFS and AB32 polices must be coordinated and it is not possible to specify one without the other. However, it is clear that if the AB32 program includes a hard cap, the intensity-based LCFS must be separate or the cap will be meaningless. Including the transport sector in both the AB32 regulatory program and LCFS will provide complementary incentives and is feasible.

R17: Interactions with other policy instruments and initiatives

The LCFS will likely interact with many other government policies and initiatives, but a complete search for such interactions was not feasible here. More research is needed.

R18: Innovation credits

Assigning additional credits for more innovative low carbon fuels should be considered.

R19: Environmental justice and sustainability issues

Fuel providers should be required to report on the sustainability impacts of their fuels, especially those related to biofuels. The state should perform a periodic assessment of the impacts of the LCFS, in California, the US and globally, and should consider policies and sustainability metrics to mitigate these effects as we learn about them. Biofuels produced on protected lands should be excluded from the LCFS. The ARB should conduct more research on sustainability impacts, paying close attention to international efforts. At the start of LCFS implementation, we recommend against regulatory requirements beyond the reporting and land exclusion provisions. At the mid-course review, the effectiveness of the reporting requirements should be evaluated and the adoption of additional sustainability metrics should be considered.

R20: Program review

Conduct a 5 year review, beginning in 2013, of data, methods, fuel production technologies, and advanced vehicle technologies. The intent is not to review the intensity targets, unless climate science has so radically changed that we are much more confident than today that either greater or lesser reductions are required.

R21: Cost analysis

The ARB should conduct a cost analysis of the LCFS following the cost-effectiveness approach used in evaluating the U.S. Clean Air Act. This analysis should acknowledge uncertainties due to proprietary information and innovation in low-carbon energy technologies. It should also include a discussion of non-climate related costs and benefits.

R22: Research needs

A great deal of research is needed to successfully implement the LCFS. Key areas include better characterization of the global warming impacts of different fuels, tools to allow regulators and obligated parties to assess different fuel production pathways, uncertainties in these values, the role of land use, environmental justice and sustainability goals, and the GHG implications of the vehicle lifecycle.

Biofuel Production

The report warned that earlier greenhouse gas emission assessments often ignored the impact from switching land use to accommodate biofuel production.

One of the most challenging issues in the implementation of the LCFS is the climatic effect of land use change due to expansion of biofuel production. Because food and energy markets are global, all agricultural production contributes to the pressure to clear new land for crops. Recent scientific investigations suggest that enormous amounts of greenhouse gases can be released when lands are converted to more intensive cultivation (and also cause other adverse effects such as reduced biodiversity and changed water flows). These land use effects have been largely ignored in earlier lifecycle greenhouse gas assessments of biofuels. If biofuels are to reduce greenhouse gas emissions relative to fossil-based gasoline and diesel, then biofuels must:
i) use advanced production methods (some of which are available now),
ii) be derived from feedstocks grown on degraded land, or
iii) be produced from wastes or residues. Land use change effects should be included in the LCFS, though cautiously at first, with the understanding that further research may change our understanding of this issue and therefore how it should be regulated.

Transportation Sustainbility Research Center at U California Berkeley: The Transportation Sustainability Research Center fosters research, education, and outreach so that transportation can serve to improve economic growth, environmental quality and equity. It is housed at the UC Berkeley Institute of Transportation Studies.

Edited by Carolyn Allen
| transportation | diesel | Biofuels | agriculture | construction | fuel | innovation |


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