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UC Experts Make 22 Policy Recommendations for Implementation of Low Carbon Fuel Standard

Lcfs
Illustrative compliance paths for the LCFS. The report recommends either the Technology Forcing or Accelerated compliance paths. Click to enlarge.

The California Low Carbon Fuel Standard (LCFS) should apply to all gasoline and diesel used in California for transportation, including freight and off-road applications, according to experts at the University of California in a second and final report on developing the LCFS.

The LCFS should also allow providers of non-liquid fuels (electricity, natural gas, propane, and hydrogen) used in California for 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.

That recommendation is one of 22 made in A Low Carbon Fuel Standard for California Part II: Policy Analysis. The LCFS, ordered in January by California Governor Arnold Schwarzenegger (earlier post), is intended to deliver a 10% reduction in the carbon intensity (measured in gCO2e/MJ) of transportation fuels in California by 2020.

As the first major example of a LCFS, rhe California LCFS may become the foundation for similar initiatives in other states, as well as nationally and internationally.

The report’s primary authors are Professor Alex Farrell, director of the Transportation Sustainability Research Center at UC Berkeley, and Professor Daniel Sperling, director of the Institute of Transportation Studies at UC Davis.

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

—Daniel Sperling

In Part 1 of the report, completed in May, the authors evaluated the technical feasibility of achieving the 10% cut by 2020. (Earlier post.) They 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. At the end of June, the California Air Resources Board voted to start working toward that goal, with the new standard taking effect by January 2010.

In the just-released Part 2, Sperling and Farrell examine many of the specific policy issues involved in designing a low carbon fuel standard. The LCFS, together with California’s vehicle greenhouse-gas standards, will advance automobile technologies and contribute significantly to achieving California’s climate change goals.

Stabilizing the climate will require major changes in the coming years, and the new fuels that will come on the market in response to the low carbon fuel standard will be an important part of that change. One of the key roles for the state agencies will be ensuring that the competition among the different fuels results in real carbon emission reductions, more consumer choice, and minimal costs.

—Alex Farrell

The specific policy recommendations of the report are as follows:

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, as noted above.

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 and 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. The report recommends 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. 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. The report recommends 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.

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 more is learned 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, the authors 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 there is much more confidence 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 US 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.

This research was supported by the Energy Foundation and conducted by a team of researchers at UC Davis and UC Berkeley, who coordinated and consulted extensively with the staffs of the California Air Resources Board and the California Energy Commission, and the representatives of many stakeholder organizations.

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