Popping the Hood on California's Low Carbon Fuel Standard, Pt 2: The Low Carbon Double Standard

December 16, 2010 |

Popping the Hood on California’s Low Carbon Fuel Standard

By Brooke Coleman

Part II: The Low Carbon Double Standard

There is tension in the advanced biofuels industry right now between the understanding that the California LCFS has some potentially very serious flaws and the underlying hope that it could nonetheless emerge as a valuable policy for low carbon fuels.

This puts the industry in a tough position. They want to support the LCFS in concept, but also want it fixed. If that is the position that biofuel companies are going to take, it is important to have an honest discussion about what, exactly, needs to be fixed.

This is critical for several reasons. First and foremost, the LCFS is not going to get fixed if the problems and solutions are not clearly articulated. Second, there are a great number of groups pledging their commitment to improving and balancing the LCFS, but when push comes to shove these same groups are not demanding results. This soft pedaling must end. Third, an inconsistent LCFS is not going to survive the journey to national adoption, which is where proponents want it to go.

Unfortunately, there is more than one double standard in the California LCFS. Operating from the belief that you have to start somewhere, this article begins with the one that is most fundamental to the credibility of the policy.

Indirect Land Use Change: Why it’s a bigger problem than you might think

Most biofuel stakeholders are aware that the LCFS is controversial, that the controversy stems from indirect land use change (ILUC), and the central issue is the imprecision of the science. There is no question that the science is imprecise, and needs serious additional work. But imprecision is not a double standard.

The double standard comes into play with how indirect effects are applied in the LCFS. In other words, even if ILUC science matures to perfection, there are still major inconsistency problems with how the science is applied. If this problem is not corrected, the regulation will suffer from a perpetual headwind that will make more widespread implementation extremely difficult, if not impossible.

When CARB included ILUC emissions for biofuels, the agency essentially decided to penalize biofuels for its impact on the “resource margin” rather than its average impact on the land resource. This basically means that instead of penalizing biofuels for its impact on the land actually used to produce the biofuel feedstock, the LCFS debits biofuels for its forecasted impact along the geographical margin of the world agricultural footprint. The rationale is that using more land in Location A will drive existing or new land users to Location B.

The idea at work here is that increasing demand for a finite resource (in this case, land) has the inevitable indirect effect of pushing someone else, somewhere else. For many, that’s enough right there. The idea that a biofuel company using a feedstock from Location A should be paying for the land conversion choices of, say, a “displaced” food or animal feed company using a feedstock from Location B clearly violates the polluter-pays principle that makes environmental regulation credible in the first place. Not even the baleful corn cob can be in two places at the same time. But putting aside the concern about who pays for what, there is actually a name for this type of thinking in the world of carbon accounting. It’s called “consequential” lifecycle accounting.

In a nutshell, there are two types of carbon accounting, the traditional “attributional LCA” and the more controversial “consequential LCA.” Attributional LCA seeks to quantify the cumulative carbon emissions directly attributable to producing and using a particular fuel; in essence, its supply chain emissions. Consequential LCA endeavors to predict the market-mediated effect of a change in the marketplace, such as more biofuel use, often along the margins of the resource system. For consequentialists, it’s not about the unit of resource actually used; it’s about the unit of resource indirectly brought into use as the result of a change of behavior. The diagram below illustrates the difference between direct and indirect effects.

It is important to note that the acknowledgment of this potential effect is not the same as asserting that this effect occurs now. If new biofuel demand is met via the use of pre-cleared idle land, the effect is negligible (this is similar to arguing that the indirect effect of electric vehicles will be insignificant because electric car owners will only use excess supply by plugging in at night). In fact, there is empirical data analysis suggesting that ILUC is not occurring today to any significant degree.

It is also important to note that while consequential LCA has been around for a couple of decades – most often used to forecast the second order effects of certain policies – it has never been employed in direct regulation. And it is a game changing variable. The decision to debit biofuels on the resource margin increases the LCFS carbon intensity value of corn ethanol by 50 percent, sugar ethanol by 200 percent, soy biodiesel by 300 percent, and based on highly preliminary numbers, farmed cellulosic ethanol by 7X, erasing or greatly reducing the advantage it had over all other fuels, before ILUC.

If ILUC, then CARB has an obligation to go to the resource margin for other fuels

One of the great myths about ILUC is it just appeared like a ship on the horizon, and when it did, the definition of “full lifecycle” changed and regulators had an obligation to include it.

This is ridiculous. CARB staff publicly announced its decision to include ILUC in December 2007, well before the national ILUC debate started in February 2008, before it had commissioned any formal modeling of the possible effect, and based only on preliminary analysis. In other words, they sniffed out a possible area of concern, and then commissioned the work.

Even more importantly, the definition of “full lifecycle” only changed for biofuels. In a world in which we aim to accurately compare the climate intensity of different fuels, the definition of “full” needs to be consistent. If the resource margin is in play, it should be in play for all fuels.

The process starts with fixing our gaze in the right place. Remember that the idea at work for ILUC is that increasing demand for a finite resource has the inevitable indirect effect of pushing someone else, somewhere else. Well, this is the case for any finite resource.

For biofuels, it is land. For petroleum, it is crude oil. For natural gas, it is natural gas itself. For electricity, it is the natural resources used to produce electricity. Same for hydrogen. Let’s take a look at each fuel a little more closely, because the effects sound a lot like ILUC.

When an oil company uses a barrel of light sweet crude to produce gasoline, it removes that resource from the portfolio for other gasoline producers, which in turn drives these other producers to new resources along the margin of the worldwide crude oil marketplace, just like land use change. If tar sands or heavy oil is part of the marginal resource used, which is a certainty, the ILUC principle says that the use of light sweet crude should pay a significant indirect effect penalty under the LCFS.

Likewise, using more natural gas for vehicles has two potential “resource margin” effects. First, as is the case for oil, when conventional natural gas is used for vehicles, it removes that resource from the portfolio for other natural gas users, which in turn drives these companies to the new natural gas resource along the margin of the worldwide natural gas marketplace. If marginal (unconventional) natural gas is more carbon intensive, which many believe it is, the ILUC principle says the conventional natural gas should pay for this “resource margin” effect in the LCFS.

Second, using more natural gas for vehicles will remove that resource from the portfolio for power producers, which in turn will drive power generators to the margin of electricity production markets to find a replacement feedstock to produce electricity. If coal or heavy oil is part of the marginal resource used, the ILUC principle says that natural gas in vehicles should pay a significant indirect penalty here as well.

Using more electricity and hydrogen for vehicle propulsion will have a similar effect on electricity markets. The amount of electricity on the grid is finite, as are most natural resources used to produce it. If electrons are used to propel a car or produce hydrogen to propel a car, power companies will be forced to find another electron to power a home or business. The new electron will be produced from natural resources along the margin of the electricity generation marketplace. The general rule is that the margin is dirtier. More on that later.

“Actually, we looked for them.”

During the April 2009 LCFS Board Meeting, a member of the CARB Board asked about stakeholder calls to look at the indirect effects of other fuels. CARB staff responded, “[a]ctually, we looked for them,” before likening the effort to the search for “weapons of mass destruction” (Board Transcript, p. 309).

CARB got away with this statement for two reasons. First, the issue was not well understood at the time. Second, key allies were singing the same tune. In a statement released the day of the hearing, the Union of Concerned Scientists (UCS) went so far as to say, “the biofuel industry’s call for ‘sound science’ is dishonest.

When a group of California cleantech investors cautioned against the selective enforcement of indirect effects, NRDC and E2 neutralized the weight of the testimony by submitting a letter of their own, and telling the Board “apparently not all investors and biofuel producers … speak with one voice,” (Board Transcript, p. 278). The classic case of divide and conquer. All three groups spun the dissent against the LCFS as coming only from disgruntled corn ethanol supporters and lobbyists, when in fact the concern was more widespread.

If CARB actually looked at indirect effects for other fuels, as they publicly claimed, they did so in private. The LCFS public record does not include a single analysis of the indirect effects of other fuels, and unlike ILUC, there is no contract or budget allocation to researchers to look at these effects.

When a sub-group of the broader LCFS Expert Working Group, aptly named the “indirect effects of other fuels” working group, finally looked at the issue over the last 12 months, CARB did not share the analysis they claim to have of these effects, internal or otherwise, with the sub-working group. It is therefore misleading, and legally dubious, that the LCFS Lookup Tables (the ones that will be used to enforce the LCFS within weeks) include zeroes for indirect effects for other fuels. Zero is a number, and there is no support in the public record for zero.

“I put up my thumb and shut one eye, and my thumb blotted out the planet Earth.”

Clearly, Neil Armstrong was not talking about indirect effects when he spoke these words. But it is nonetheless true that perspective matters when dealing with something as potentially limitless and disorienting as indirect, market-mediated effects.

Fortunately, there is a document that brings greater clarity to at least a substantial part of the indirect effects universe: the preliminary report issued by the LCFS Expert Working Group’s Subgroup on Indirect Effects of Other Fuels. This was not a full consensus document among the participants, and calls for more analysis than it actually presents, but the report provides color to the issue.

A few highlights:

The report compiles data suggesting that the resource margin for petroleum is significantly more carbon intensive and significantly more expensive than the average petroleum CI value used in the current LCFS. Some of the petroleum fuels now being introduced into the marketplace in large quantities – tar sands, heavy and extra heavy oil, oil extracted using thermal enhancement – are anywhere from 15 percent to more than 100 percent more carbon intensive than the CI value given to petroleum fuels in the LCFS.

The low end of this range is equal to the most recent science on ILUC. The upper end far exceeds it. Economic modeling needs to be done to determine what combination of fuels actually constitute the resource margin, and to what effect higher oil prices will cause other indirect effects.

The report points out that the use of biofuels precludes the use of the marginal barrel of oil. One way to account for this is to assign an indirect credit (given that indirect effects are in play) to biofuels for this market-mediated, indirect effect. Economic modeling needs to be done to determine what combination of fuels is actually avoided with biofuels (because it’s not just the worst ones).

The report points out that an increasing percentage of natural gas is coming from “unproved shale gas and other unconventional” types of natural gas. Shale gas represents the single largest source of growth in the U.S. natural gas industry, according to EIA data. And a simple Internet search will reveal that while few studies have been done to quantify the carbon intensity impact of shale gas, fugitive methane emissions are a major issue that could make shale gas much worse than conventional natural gas.

Economic modeling needs to be done to determine what combination of fuels actually constitute the resource margin for natural gas, but it is almost certainly more carbon intensive.

The report calls into question assumptions made about electricity and hydrogen with regard to the actual resource impacts of those fuels, and recommends that CARB take another look. There will be more discussion on electricity in the 3rd installment of this series.

Final thoughts

The usual response to articles like this is something along the lines of “show me a credible and significant indirect effect and we’ll include it” or “let’s be productive, the LCFS is a work in progress.”

These are old and stale pledges, usually from groups that have refused for more than two years to recognize the asymmetry of going to the resource margin for one fuel and not another, or have failed to support a robust scientific analysis of the resource margin of other fuels that would bring balance to the ILUC debate.

There is a lot at stake. Inconsistent carbon accounting has erased or greatly reduced the carbon advantage advanced biofuels had over all other ultra low carbon fuels. Inconsistent carbon accounting could allow low carbon fuel markets to be saturated in the intermediate term with fuels that do not pay for marginal resource impacts, like natural gas.

But most importantly, inconsistent carbon accounting has eroded support for the policy, and clouded its path to national implementation. We need to get beyond platitudes, pinpoint the problems, and correct them.

Next installment: The California LCFS and Electricity: Fair or Foul?

Brooke Coleman is executive director of the New Fuels Alliance.

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