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Harmonizing Low Carbon Fuel Standards

In a draft of the first Review Report for the California Low Carbon Fuel Standard (LCFS), the staff of the California Air Resources Board (ARB) notes that the harmonization of LCFS programs globally will be important “for ensuring that global GHG emission reductions actually result from these programs”.

Harmonizing LCFS programs means bringing key elements of different LCFS regulatory frameworks into accord with one another, while recognizing that these elements will not necessarily be (or need to be) identical, staff notes in the report. For example, while the carbon intensities of fuels in differing LCFS programs may differ due to regional differences in the energy required for feedstock production, the feedstocks used for electricity production, and the transportation distances of feedstocks and fuels used for estimating CI, the inclusion of CIs in all LCFS programs will encourage the production of lower CI fuels, staff said.

Harmonizing fuel programs between state, federal, and foreign jurisdictions is useful to ensure the optimum reduction of greenhouse gas (GHG) emissions. Similar fuel program frameworks reduce the possibility of fuel shuffling across different jurisdictions, and they reduce the administrative burden for both regulated parties and regulatory agencies. Program elements that should be considered for harmonization include LCA analysis, sustainability requirements, reporting requirements, and credit calculations. For LCA analysis, the model used for calculation (CA-GREET, GHGenius, etc.) is not important as long as all facets of fuel production (feedstock production, feedstock transportation, fuel production, fuel transportation and storage, and ILUC) and fuel use are similarly considered. The harmonization of LCFS programs is not without risks. Harmonization must not be achieved at the expense of actual GHG emissions or environmental considerations. For example, harmonizing the California LCFS with programs that do not fully consider ILUC could make it difficult to achieve real GHG emissions on a global scale, and programs lacking sustainability provisions could promote environmental damage.

—Low Carbon Fuel Standard 2011 Program Review Report

The California LCFS regulation, which went in to effect on 15 April 2010, targets a reduction of the carbon intensity (CI), on a full-fuel lifecycle basis, of transportation fuels (measured in gCO2e/MJ) used in California by an average of 10% by the year 2020. One section of the regulation requires the conducting of two reviews of the LCFS program in a public process, with the use of a convened Advisory Panel. California Air Resources Board (ARB) staff are to present the results of these reviews to the ARB by 1 January 2012, and 1 January 2015.

The Advisory Panel has now met officially six times during 2011. ARB staff recently published the draft of the first review for comment (subsequent to the first five meetings and prior to a sixth supplemental meeting of the Panel on 17 November).

The report presents the ARB staff assessment of the implementation status of the LCFS that was prepared in consultation with the LCFS Advisory Panel. The report covers a range of topics including opportunities to further harmonize the LCFS with other similar programs within the United States and outside of the country; the supply and availability of low carbon fuels; the continuation of assessments (including lifecycle, economic, and environmental impacts); potential high-level program enhancements to better ensure that the LCFS long-term targets for 2020 and beyond are met; and alternative approaches for handling High Carbon Intensity Crude Oil (HCICO) under the program. (Earlier post.)

The concept of harmonizing specific aspects of the LCFS program with other low carbon fuel standard programs has been of interest for the staff since the inception of the program. We developed the framework for the LCFS in order for it to be easily exported to other jurisdictions with only minor tweaks. Since the initiation of the LCFS, many other LCFS-like programs have emerged both nationally and internationally (e.g., Northeast States, Oregon, the EU, etc.). Some of these are performance-based standards, similar to the LCFS, while others are biofuel mandates that may or may not take into account the full fuel lifecycle analysis. All these programs have potential effects on the LCFS and the movement/use of low carbon fuels around the world.

...The concept of harmonizing does not necessarily require that fuel-based GHG programs in different parts of the world be identical. Different regional or national programs can exist harmoniously when their program elements reinforce each other, rather than conflict. To this end, the Panel highlighted the potential importance of harmonization in five main areas. These included: lifecycle assessment; the treatment of HCICO and fossil fuels; sustainability principles and criteria; reporting and chain of custody; and uniformity in the credit market. There are some distinct advantages to harmonizing programs related to these areas, including, but not limited to: lower risk of feedstock and fuel shuffling; ability for credits generated in one program to be used in another program; ease of reporting for regulated parties between different programs; and uniformity in the methodology used to evaluate the GHG impacts of transportation fuels, among others.

—Low Carbon Fuel Standard 2011 Program Review Report

However, ARB staff notes, there are also risks associated with harmonizing the LCFS with other programs this early on in process:

  • To attempt to harmonize with a program that does not include both portions of the lifecycle analysis, especially inclusion of indirect effects, would greatly compromise the GHG reductions that the LCFS is set to achieve.

  • Because other programs are just as new or even newer, there is no proven path forward that ensures success. So until those other programs become more established and proven, staff believes that it would be premature to alter the LCFS to further harmonize with them.

With that said, and at the panelists’ recommendations, we will continue to investigate the benefits and risks of harmonization with other comparable programs. ARB has and will continue to work with other jurisdictions, in hopes of eventually harmonizing key elements of the programs, while being mindful of implementing what makes the most sense from California’s perspective.

—Low Carbon Fuel Standard 2011 Program Review Report

Several LCFS programs are under development or in consideration in other regions:

  • Northeast/Mid-Atlantic Regional Clean Fuels Standard. Eleven northeast and mid-Atlantic states are currently participating in the evaluation of a regional Clean Fuels Standard (CFS), which would lower the average carbon intensity of transportation fuels in the region and support the development and use of alternative fuels such as advanced biofuels, electricity, and natural gas. A 2009 Memorandum of Understanding signed by the Governors of the eleven states committed the states to developing a program framework and conducting an economic analysis of the potential impacts of the program.

  • Oregon. The Oregon Legislature authorized an LCFS program in 2009 as part of House Bill 2186, tasking the Department of Environmental Quality (DEQ) to design the program. DEQ released in January 2011 draft rules reflecting the recommendations of the advisory committee and will consider final proposed rules in December 2011. The proposal is modeled after California LCFS while being customized to meet conditions in Oregon. The proposal mandates a 10% GHG reduction that is to be achieved by 2022.

    The Oregon LCFS program does not cover propane and also exempts farm and logging trucks. There are several safeguards to protect low carbon fuel producers, regulated parties, and consumers from unintended negative effects of low carbon fuel standards, such as an inadequate supply of low carbon fuels or a non-competitive price of fuel with its neighbors. Such safeguards include a series of exemptions, deferrals, and periodic program reviews. Although the methodological approaches of the Oregon LCFS have not been finalized, they appear similar to the California LCFS, according to ARB staff.

  • Washington. Executive Order 09-05 directs the Washington Department of Ecology to assess LCFS provisions that would best help the state meet its GHG goals. The final report on an LCFS was published in February 2011. The plan assumes carbon intensity will be reduced 10% from 2007 levels by 2023, with reductions beginning in 2014.
  • British Columbia. British Columbia (BC) currently has an LCFS program that applies to transportation fuels manufactured, brought into, or received in BC. The GHG reduction targets are same as California LCFS program, but the BC program includes propane as a regulated fuel. LCFS credits are not restricted from use in other programs; however, credits generated outside the LCFS program cannot be used for compliance.

    Although there are similarities with the California LCFS, there are also some important differences, ARB staff notes. In contrast to the California LCFS, the BC program does not, at this time, include indirect land use change (ILUC). The model used for estimating the direct CI is GHGenius, similar in principle to CA-GREET model but with some differences. BC is participating in federal development of sustainability criteria in Canada.

  • Midwestern Governor’s Association. The Midwestern Governor’s Association represents Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Ohio, South Dakota, and Wisconsin. The Advanced Transportation Fuels Advisory Group is currently undertaking studies and discussions of a Low Carbon Fuels Policy. According to the 2010 Low Carbon Fuels Policy Document, proposed recommendations are to use 2005 as baseline for reductions and to require 10% reductions within 10 years of implementation.

  • US National LCFS. In 2007, then-US Senator Barack Obama proposed a National Low Carbon Fuel Standard (NLCFS) based on the California LCFS. (Earlier post.) In 2009, a study project was created to respond to key information gaps regarding a potential national LCFS. This study is a collaboration between researchers from six research institutions, including Institute of Transportation Studies, University of California, Davis; Department of Agricultural and Consumer Economics/Energy Biosciences Institute; University of Illinois, Urbana-Champaign; Margaret Chase Smith Policy Center and School of Economics; University of Maine; Environmental Sciences Division, Oak Ridge National Laboratory; Green Design Institute of Carnegie Mellon University; and the International Food Policy Research Institute.

    The primary objectives of the national LCFS project are to compare LCFS with other policies for reducing anthropogenic GHG emissions from transportation; and to develop policy design recommendations for a national LCFS policy that would be effective, implementable, and compatible with a broader portfolio of climate policies.

    Policy design recommendations are intended to define at a high level a national LCFS policy framework that would be effective, implementable, broadly compatible with state and regional initiatives underway, complementary to a broader portfolio of national and international climate policies, and acceptable to the majority of the stakeholders.

  • Europe. The European Commission amended the European Fuel Quality Directive 98/70/EC in December 2008, to include the de-carbonization of transport fuel. Unlike the California LCFS, the European Fuel Quality Directive does not include a lookup table of CIs for specific transportation fuels. However, suppliers will be required to report on the lifecycle GHG emissions of the fuel (gasoline, diesel, and gas-oil) they supply and reduce these emissions from 2011 onward.

    Suppliers will be required to gradually reduce GHG emissions per unit of energy by up to 10% in 2020. This is to be accomplished through the use of biofuels, alternative fuels, and reductions in flaring and venting. The fuel directive applies to suppliers of fuel for road vehicles, non-road machinery (including inland waterway vessels when not at sea), agricultural and forestry tractors, and recreational craft when not at sea.

The ARB staff draft report outlines five priority areas for LCFS harmonization:

  1. Lifecycle Assessment. The LCFS regulatory framework builds upon estimates of the CI of each regulated fuel pathway. CI is determined using lifecycle assessment (LCA) of the aggregate quantity of GHG emissions associated with the production, transport, storage, and use of a fuel, including direct and indirect effects.

    While the individual models being used by different jurisdictions may differ in some respects, ARB staff suggests, the emphasis for a harmonization effort should be to strive for consistency in the data and on the assumptions used in conjunction with these models so that the overall results can be meaningfully compared.

    Harmonization of LCA methodologies between jurisdictions could reduce the potential for leakage and fuel shuffling; inconsistencies in CIs will create incentives to shuffle fuels between states to reduce penalties under the individual programs.

    It is important to note that the actual direct CI values for the individual fuel pathways are not expected to be identical but are expected to vary between different jurisdictions. This results not so much due to variation in assessment methodology but rather due to local influences on the inputs to the fuel production chain (e.g. type of energy use in the refinery, local transportation inputs for the feedstocks and products, etc.). However, as long as the GHG accounting methodologies are fundamentally similar and are using similar assumptions for data inputs, the potential for leakage and shuffling could be minimized.

  2. Fossil Fuel/HCICO Treatment. The California LCFS includes a provision for addressing high carbon intensity crude oil (HCICO)—a recognition that some crude oils require additional energy to produce (e.g., bitumen mining or thermally enhanced oil recovery techniques) or emit higher levels of GHG emissions during the production process (e.g., excessive flaring). (Earlier post.) An important goal of the HCICO provision is to provide a signal for oil producers to engage in emission reduction activities, such as reducing flaring, improving energy efficiency, and using carbon capture and sequestration.

    However, other jurisdictions do not address the HCICO issue. Harmonization of the treatment of HCICO across jurisdictions will boost the signal to crude oil producing companies for GHG emission reduction activities and promote innovation, ARB staff suggests. An important additional benefit of harmonization in this area is a reduction in carbon leakage due to shuffling.

    ARB staff is currently working on a tool that standardizes the methodology to determine carbon intensity of crude oil production from various processes and sources around the world. Once developed, this tool will be used to assess variations of crude production emissions on a periodic basis. This tool will be made available for use by other jurisdictions as well.

  3. Sustainability. Harmonized sustainability criteria could reduce the burden on businesses and reduce the scope for fuel shuffling. Staff is assessing how existing laws and regulations address sustainability for the management and harvest of biofuel feedstocks and biofuel operations. Also, because several other countries have initiatives that are farther along than the LCFS, staff is following the development of certification and benchmark systems developed by other countries, organizations, or industry groups that can serve as models for California.

  4. Reporting and Chain of Custody. Under the California LCFS program, staff has worked with stakeholders to establish procedures for reporting information under the program. An integral part of this effort has been the development of a web-based reporting tool for fuel producers to use to establish compliance under the program. Regulated parties use the LCFS Reporting Tool (LRT) to electronically manage accounts, enter or import fuel data, submit electronic reports and corrections, and track credits and deficits.

    Additionally, ARB staff has established a voluntary Biofuel Producer Registration program to help facilitate biofuel transactions by giving buyers and sellers of biofuels a common online resource containing registered CI values and physical pathway information that can be traced to specific production facilities. The reporting and tracking tools developed under the California LCFS program can be made available to other states’ programs, thus reducing the need to replicate the effort.

  5. Credit Market. A credit market that allows import/export of credits between LCFS programs would potentially enhance the compliance flexibility provided under the individual programs, ARB staff says. The LCFS credits, denominated in metric tons of carbon dioxide equivalent (MTCO2e), are based on an analysis of the transportation fuel’s full lifecycle carbon intensity (CI).

    A key consideration for the success of an expanded credit market is to ensure equivalent CI reduction value associated with credits generated under separate programs. This in turn can be achieved by harmonization of the other elements of the program such as LCA methodologies, treatment of crude oil, compliance schedules, reporting methodologies, credit accounting methodologies, etc.

Harmonizing LCFS programs to the extent practical will help to create an environment where credits may be freely traded, fuel shuffling will be inhibited, and the burden on regulated parties and regulatory agencies will be lessened. ARB will continue to work with representatives from other government LCFS programs in an effort to harmonize LCA methods, sustainability requirements, reporting requirements, and credit trading mechanisms.

—Low Carbon Fuel Standard 2011 Program Review Report



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