Discussion Paper Suggests Mechanisms for Addressing Biofuel GHG Emissions Under Cap-and-Trade Schemes; Avoiding the “Renewability Shortcut” and Moving Toward Carbon Management for All Transportation Fuels
Including biofuels under a cap-and-trade scheme could create a more complete carbon management framework for the transportation fuels sector, according to a new peer-reviewed discussion paper by Dr. John DeCicco. DeCicco, formerly on staff at the Environmental Defense Fund (EDF), is now a Senior Lecturer at the University of Michigan’s School of Natural Resources and Environment.
While including all fuels under a carbon cap is necessary for an effective climate policy, DeCicco argues, it is not sufficient for addressing all fuels-related emissions. “In particular, it fails to cover many GHG emissions during the production of biofuels and their feedstocks. It also risks emissions leakages through the interlinked fuels and agricultural commodity markets that cross the boundaries of capped and uncapped sectors both domestically and internationally. Thus, the carbon accounting system under a fossil-based cap alone is incomplete when it comes to biofuels.”
The paper explores ways to close the gaps in cap-based emissions accounting for biofuels while mitigating the associated leakages. DeCicco proposes a three-part approach:
Require refiners to submit allowances sufficient to cover the conventional fuel equivalent carbon content for the energy value of all transportation fuel distributed, regardless of fuel type, except to the extent it is rated as demonstrating lower net uncapped direct GHG emissions.
Establish Fuel and Feedstock Accounting Standards (FFAS) for rating fuels and feedstocks based on uncapped GHG emissions throughout their supply chains; while voluntary, FFAS ratings would provide a way to reduce refiners’ allowance requirements as defined by Part (1).
Address market-mediated impacts (indirect GHG emissions versus those in the direct supply chain) through a Land Protection Fund (LPF) for purchasing international forest carbon offsets commensurate with induced fuels-related GHG emissions not otherwise accounted for.
|“ A broader question not analyzed here is whether any form of bioenergy (as might be used to produce electricity and hydrogen) is properly treated under cap-and-trade or renewable energy policies that use the renewability shortcut.”
While an RFS can remain in place to drive volumes of specified fuels into the market, DeCicco suggests, the proposed approach avoids the need for either LCA requirements in the RFS (Renewable Fuel Standard) or the added regulatory layer of an LCFS (Low Carbon Fuels Standard). “Integrated into a cap-and-trade framework, this market-based approach would provide biofuel and feedstock production with a carbon price incentive tied to the cap, creating a more complete carbon management framework for the transportation fuels sector.”
The “renewability shortcut”. Analysts and policy makers generally exclude biogenic CO2 emissions form fossil-based carbon cap schemes, assuming that the fact that the biogenic Co2 was recently recycled from the air through plant growth means that the biofuel emits no net CO2 over what would have been emitted if biofuel were not used.
This “renewability shortcut” is, however, questionable. One issue is that of the additionality: whether growing biofuel feedstocks absorbs more CO2 than would have otherwise occurred when cultivating plants for other purposes or leaving land to unmanaged (“natural”) plant growth. A related issue is emissions leakage: an effect tied to the economic coupling of biofuels from an uncapped sector substituting for fossil fuels in a capped sector. Questions include the extent of land displacement due to market linkages, including indirect land-use change that aggravates tropical deforestation and leads to a large release of stored carbon.
These concerns have not been considered in either cap-and-trade proposals to date or in policies to promote biofuels through mandates and subsidies. Until recently, neither were they adequately considered in proposals to regulate fuels through lifecycle analysis. While comparing fuels according to “carbon footprint” has simplistic appeal, and such analysis can be expansive in scope (covering indirect land-use change and other secondary effects), it is unclear that lifecycle analysis provides an appropriate framework for regulation. Moreover, lifecycle accounting is not consistent with the fully additive annual basis carbon accounting needed to rigorously track GHG emissions under a cap, which is in turn necessary for the overall environmental integrity of any climate protection regime.
Emissions missed by a fossil-based cap. DeCicco notes that GHG emissions missed by a cap include not only those associated with biofuels, but also emissions associated with overseas production of petroleum fuels from both conventional and unconventional sources.
In the paper, he estimates biofuel emissions missed by a fossil-based cap as ranging from 89–177 TgCO2-equivalent in 2020, or roughly 5%–9% of a baseline level of 1,985 TgCO2e for US transportation sector direct CO2 emissions in 2005. He finds a greater quantity of missed emission related to imported petroleum products, amounting to roughly 253 TgCO2e in 2020, including overseas emissions from both conventional refining and heavy crudes.
Counting both biofuels and petroleum products, total transportation-related emissions missed by the cap range roughly 342–430 TgCO2e in 2020, or 17%–22% of sector’s 2005 direct emissions. In other words, missed emissions are comparable in magnitude to the level of GHG reductions under consideration for that time frame. Note that even in 2005, 183–208 TgCO2e would have been missed under a cap set at the 2005 level. The majority of these baseline missed emissions are from overseas refining of conventional petroleum (i.e., the emissions embodied in imports of gasoline and other petroleum fuels), which are not part of the US GHG inventory.
...Because the set of concepts outlined here addresses only biofuel-related emissions, it potentially addresses 89–177 TgCO2e (26%–41%) of the total 342–430 TgCO2e of US transportation fuels related emissions that this analysis suggests would be missed by a fossil-based carbon cap in 2020. However, essentially all of the remaining emissions are trade-related, being embodied in imported conventional fuel products. Other mechanisms will be needed to address those and the similar emissions associated with imported non-fuel products regardless of the approach taken for biofuels.
DeCicco’s three-part approach addressing biofuels in the context of a fossil-based carbon cap does not address high-carbon petroleum fuels, nor does it address electricity or hydrogen, which would be handled by a cap’s coverage of stationary sources where they are produced.
Features of DeCicco’s proposed three-part approach include:
The cap itself becomes the primary driver for GHG emissions reduction in the transportation fuel and feedstock supply chain.
The point of regulation (POR) for covering fuels under the cap must be the point of finished fuel product distribution, not the refinery gate as commonly proposed to date.
It holds unrated biofuels competitively harmless against conventional fuels.
It need not replace the Renewable Fuel Standard (RFS), which can remain in place as a separate program to drive volumes of specified fuels into the market.
Use of the FFAS is voluntary, but rigorous accounting for fuels under the cap will create an incentive for fuel and feedstock providers to rate their products using the FFAS.
Although informed by lifecycle analysis, FFAS rating differs from it in important ways. FFAS is facilities-based rather than product-based in that the basic unit of accounting is a facility (farm, forest, biorefinery, etc.) where feedstock and fuels are produced.
It would establish a market-based GHG management system that does not entail or require explicit comparisons of fuels.
The Land Protection Fund (LPF) would use the same specifications as proposed for international forest carbon programs, drawing on the extensive policy development work that has already gone into prescribing requirements for high-quality offsets.
...the concepts introduced here are applicable for designing market-based policy to limit emissions and motivate technology change in the transportation fuels sector. Further analysis and discussion are needed to assess whether this approach can be developed into an effective, equitable and efficient policy for handling biofuels in the context of an economy-wide carbon cap.
John M. DeCicco (2009) Addressing Biofuel GHG Emissions in the Context of a Fossil-Based Carbon Cap