California's Governor Arnold Schwarzenegger joins Propel Fuels CEO Matt Horton at the opening of a low-carbon fueling station in San Jose

LCFS? Sounds like alphabet soup to most people, and a yawner to wide sections of the biofuels industry. And catching up on emissions regulations is, at the best of times, like a visit to the dentist.

But here’s our warning: if you don’t master California’s Low Carbon Fuel Standard, and its implications on your business, as it takes hold in the Golden State and is adopted or adapted around the world, as a biofuels investment you won’t raise a dime, your investors will be stranded, and you won’t distribute much fuel, if any, in the long term.

Having said that, it would be an understatement to note that the “critics are divided” on California’s Low Carbon Fuel Standard. Some hail it as the “way forward” on low-emission transportation fuels, some deride it as an example of “policy getting a mile ahead of the science”.

Why does it matter? California is a gigantic fuel market  – but more importantly, other states and countries tend to follow California on emissions standards. Already there is work ongoing in Oregon to adopt an LCFS along California lines, and an effort to set one up for an 11-state region in the US Mid-Atlantic and Northeast.

But – aside from its lofty and well-understood goals in reducing emissions – what’s good and what needs to be fixed in the LCFS? Where should the biofuels industry be happy, be  hopeful, or be hopping mad?

Brooke Coleman of the New Fuels Alliance – who knows this better than anyone – has been looking critically at the LCFS, to find out what’s gone right, and what’s gone wrong. The result, an amazing four-part series that we are mighty glad to publish.

Popping the Hood on the California LCFS

Proponents of the Low Carbon Fuel Standard (LCFS) say that the LCFS is the best way to reduce carbon emissions and promote alternative fuels in the transportation sector. Critics claim that the carbon accounting metrics employed by the California Air Resources Board (CARB) are inconsistent, putting the LCFS at odds with its promise to not pick winners and losers. This 4-part series – Popping the Hood on the California LCFS – will take a closer look at the LCFS debate.

Part I: LCFS Status Update

California Governor Schwarzenegger created the California Low Carbon Fuel Standard (LCFS) by Executive Order on January 18, 2007. Touted as the world’s first greenhouse gas (GHG) standard for transportation fuels, the LCFS is an early action measure under AB32, California’s broader strategy to fight global warming.

The idea behind the LCFS is to require those who sell transportation fuels (i.e. oil companies) to reduce the “carbon intensity” of their fuel over time. Each type of alternative fuel receives a carbon intensity value based on its lifecycle GHG emissions, allowing oil companies to choose from a suite of alternatives (e.g. biofuels, electricity, hydrogen, natural gas, etc.) to comply with the annual, incremental LCFS carbon intensity reduction requirements. The initial program target is a 10 percent carbon intensity reduction by 2020, but if effective, the program will extend beyond 2020.

Here is where we stand with regard to implementation of the CA LCFS:

The regulation was adopted in California in April 2009; however, the rulemaking process is ongoing given the number of implementation issues still unresolved.

As of today, the California Air Resources Board (CARB) is planning to enforce the LCFS in California starting in January 2011, using the original April 2009 carbon scoring.

The LCFS Expert Working Group (EWG), convened to further assess the uncertainties and controversies surrounding indirect carbon effects, has submitted its initial findings.

Based on the EWG work, CARB staff presented some immediate term recommendations to the CARB Board on November 19th 2010. The immediate term recommendations do not reflect the body of work submitted by the EWG, but if implemented, would represent progress in a few areas.

The trend is clearly downward with regard to indirect land use change emissions. The November 19th CARB staff presentation acknowledges this fact. However, actual adoption of a lower number has not yet occurred, and is far from certain given the caveats CARB staff included in its presentation. These deliberations are highly relevant to any fuel that uses land.

The current LCFS does not yet include pathways for cellulosic ethanol and other 2nd generation feedstock biofuels. However, there are preliminary estimates for certain types of cellulosic ethanol, and any company can theoretically establish a new pathway under Method 2A/2B procedures.

Moving Forward: The Good News for LCFS Proponents

If you are a proponent of the California LCFS, there are reasons to be positive. First and foremost, CARB staff are continuing to move the ball forward despite the enormity of the task and inhibiting factors out of their control (i.e. state deficits and mandatory furloughs). Second, the LCFS Expert Working Group (EWG) process has also progressed, adding a significant body of work to the overall product (see above). Finally, the LCFS continues to be popular in other states and regions. Oregon recently published its draft LCFS report for public comment (notably, it does not include indirect land use change penalties for biofuels). NESCAUM continues to lead an informal coalition of 11 states, established by MOU, toward the development of a regional LCFS in the Northeast/Mid-Atlantic region.

Moving Forward: The Bad News

The bad news with regard to the development and implementation of the LCFS is California has not taken the necessary steps to cure the LCFS of its primary problem: inconsistency.

It is well-recognized that the LCFS is a performance standard. This means that different alternative fuels compete for the eye of the oil companies based on their relative carbon intensity (CI) values. It is therefore absolutely critical that regulators use consistent carbon accounting methodologies to score petroleum and the different alternative fuels. In the world of lifecycle assessments (LCA), this means that the same overall LCA approach should be used for all fuels, with consistent LCA system boundaries. The importance of this commitment is outlined in ISO Standard 14040.

The underlying and ongoing problem with the LCFS is the regulation does not use the same carbon accounting methodologies for all fuels. This reality is acknowledged by an EWG sub-group report, and is undeniable from a carbon LCA perspective. Part II of this series discusses the issue in greater detail, but it is plain to see that the current version of the California LCFS uses average data for some fuels and what is called marginal data for others. It enforces indirect, second-order carbon effects against biofuels, and did not even assess indirect effects for other fuels.

Methodological consistency is not just about fairness to biofuels. It speaks to the credibility of the program, the truthfulness of its claim to not pick winners and losers, its durability as a regulation designed to support significant private sector investment and risk, and perhaps even more importantly, to the credibility of the climate effort as a whole.

In the next installment: California’s Low Carbon Double Standard

Brooke Coleman is executive director of the New Fuels Alliance.