Carbon Intensity

California implemented its Low Carbon Fuel Standard (LCFS) starting in 2010 as part of its effort to regulate CO₂ emissions on top of the fuel blending requirements. The goal was to reduce fuel carbon intensity (CI) by 10% in 10 years (between 2010 and 2020). It’s an easy concept: every fuel option receives a CI score and each year, fuel sellers must sell a fuel blend that matches that year’s carbon intensity requirement.

On its face, it’s a simple program. But the details are damaging. I like the idea of letting the market decide which fuels blends to select. But the math makes fossil fuels a no-go fuel option. There’s no way to get gasoline (CI score: 95) to hit the 86 level without severe cannibalization of their gasoline business.

The oil industry responded. Larger companies such as BP, Exxon, and Valero have all sold or attempted to sell their refineries in the state. California, then, has become a very hard place for oil companies to do business.

This is all understandable. If the objective is to get the oil companies to drive compliance through their own investment choices, than causing them to kill a large amount of their gasoline business within a decade is not going drive this change. The real issue is the lack of commercially available very low carbon intensity fuel alternatives. That’s the only missing element to this approach.

No mandates, but blend credits

Another option would be to eliminate the blending mandate and provide a direct incentive (i.e. tax credit) for blending biofuels. Presumably, the blender’s credit would need to be significant in order to maximize compliance.

This isn’t new; we had a blender’s credit for decades and it worked pretty well. It was meant as an incentive for adoption. It was removed after there was significant participation by the market.

The shortcoming is that an oil company’s incentives may still orient them around using fossil fuels. The oil industry has hundreds of billions invested in oil infrastructure. Even small reductions in capacity to, say, oil refineries, could mean the difference between profitability and not. So it’s not clear that we could outright pay the oil companies to blend biofuels at the expense of fossil fuels—at least beyond a certain point (i.e. use as an additive).

Unrenewable Fuel Standard

Perhaps most controversial would be essentially to flip the RFS on its head: rather than an annual, fixed blend requirement for renewable fuels, there would be an annual fixed blend requirement for gasoline and diesel.

This is obviously controversial, but I actually think it would benefit all parties. There’s no upside limit to renewable fuels further driving their adoption. The oil companies have all of their downstream demand guaranteed by Congress. Since the US isn’t really a growth market anymore, domestic producers will want to orient around becoming an export market while managing US assets with perfect future (say 50 years) visibility.

The RFS has served its purpose since its inception in the last decade. But as consternation grows around its future, we should recognize that there are alternatives that may serve our collective goals as well.

Doug Williams is a business development consultant for biofuels and bio-based materials start-ups. He currently lives in the San Francisco Bay Area and is the author of “Advancing Fuels: A review of the challenges facing the emerging advanced biofuels industry” (amzn.to/ZsC2JA).