LCFS vs RFS: As two contend for the Renewables Heavyweight Championship, who is the Greatest?

May 10, 2017 |

What is different about a Low Carbon Fuel Standard — as compared to a Renewable Fuel Standard?

There are 4 primary differences.

1. An RFS creates a standard, and any fuel that meets that standard can compete in that market. Once a fuel has met the low-carbon standard, it becomes entirely about fuel price — a $3.00 cellulosic fuel that reduces carbon by 60% will get market share over a $3.10 cellulosic fuel that reduces carbon by 100%, because both fuels meet the cellulosic standard. In an LCFS, all fuels get credited according to the carbon reductions of their pathway. So, there are no “motivational dead zones” when it comes to pushing harder on reducing carbon.

2. An LCFS sets carbon volumes, not fuel volumes. Under an LCFS, it entirely fine if a target of reducing carbon by 5% is achieved by having 10 percent of the fuels have a 50% lower carbon intensity, OR 50 percent of the fuels having a 10% lower carbon intensity.

3. All fuels and energy systems compete against each other. Nat Gas? Electrics? Biofuels? Just register a pathway, prove the carbon intensity, and you can compete as a carbon-lowering fuel. under an LCFS, it doesn’t matter if carbon is reduced via electrics, or biodiesel.

4. So far, the California LCFS only covers road transportation. So, jet fuel qualifies under the US RFS, but not under the California LCFS. This creates problems for airlines, because jet producers can generally also produce diesel fuel, and diesel qualifies under both the RFS and the LCFS  — so, there’s far less value in jet fuel and, consequently, no one wants to make it despite airlines clamoring for a low—carbon solution and everyone agreeing that there’s no low-carbon solution on the horizon for aviation except low carbon liquid fuels.

Mr. Popularity

The LCFS approach has been proving more popular — and in part because in California, it stacks up on top of the US Renewable Fuel Standard. Low-carbon fuels can generate a D5 advanced biofuel RIN credit worth around $1.00 today under the RFS, and another $0.70 for, say, a super low-carbon fuel like advanced biodiesel made from used cooking oil.

Generally speaking, the LCFS market — while challenged in the courts over specific pathways — has proven to be robust. Credit prices and volumes are generally on the rise — as they should be as drivers of real change.

Further, it does change biofuels feedstock strategies. Virtually no biodiesel moving into California, for example, is made from soy or canola. Those biodiesels fully qualify for standard RFS biomass-based diesel credits anywhere in the country. But more carbon-reducing feedstocks are drivers of real value in California — and accordingly, more than 90% of the credits earned by diesel-side fuels under eh LCFS represent ultra-low carbon feedstocks such as corn oil, tallow or used cooking oil.

One other thing to note. Generally, California-made fuels are more carbon advantaged because they have less carbon-intense shipping (via, rail, for example), and the LCFS has been stimulating California based low-carbon fuel production. In terms of gallons of gasoline-equivalent, California production has nearly doubled since 2011. And there are biofuels producers and charging stations popping up all over the state.

The spreading net of low carbon

Oregon has introduced an LCFS, and British Columbia. Washington state is looking at one and so is Massachusetts. Most recently, Canada announced that they are moving towards a national LCFS.

The impact in terms of price at the pump from an LCFS can be fairly minimal, at first. Right now, California is targeting a 3.5 percent reduction in carbon.

Let’s use a simplified example – the same UCO biodiesel example from above, which reduces carbon by up to 90 percent. If all California fuels had a 4 percent blend of this type, California would reach its target, and the cost to California drivers would be $0.034 or less per gallon, averaged across the entire fuel pool. That’s less than the discount for paying in cash that may retailers offer.

The example is over simplified because a) only a portion of vehicles can use biodiesel, b) there are other types of biodiesel and c) there are plenty of other competing fuels. The most popular fuel, by far, under the California LCFS, is corn ethanol.

Over the next few years, the LCFS is really going to begin to bite. The target which stood at 2.5 percent in 2016 and jumped to 3.5 percent in 2017, will jump to 10 percent by 2020. But obligated parties have banked almost a year’s worth of credits.

Driving Big Numbers

One thing is in little doubt. California’s LCFS is driving real transition. And, given that it is not simply a case of adding corn ethanol to the mix — given that many vehicles have reached their E10 saturation point and the vast majority of vehicles have a 15 percent ethanol limit. With corn ethanol’s carbon intensity, that can only account for a portion of what fuels in California will have to do. For that reason, there has been real change in the technology pace because of the LCFS as companies like Tesoro seek alternatives and companies like REG and Neste look to ramp up their production volumes.

Overall, it looks like corn ethanol in California could be counted on to deliver — with today’s carbon intensities — something like a maximum of 3.75 percent carbon reduction, given the 15 percent blend limit and the 25% average reduction compared to gasoline that corn ethanol is achieving compared to baseline gasoline.

So, think biodiesel, renewable diesel made from carbon-advantaged feedstocks, biogas, electrics, and so on.

But an LCFS could drive real change, in the end. Consider this long-term scenario:

10% of all cars are plug-in electric
1% of cars are hydrogen vehicles
30% of diesel coverts to renewable diesel, biodiesel. biogas or bio-LNG
100% of legacy gasoline vehicles use a 15% ethanol blend
Vehicles on average improve their fuel efficiency by 15%

In that scenario, a transportation pool would reduce its carbon intensity by 25%. And there’s no compelling reason why California in the long-term could not hit those figures.

The Bottom Line

If judged by adoption momentum, the LCFS is on the move and takes the champion’s belt. Based on proven ability to drive adoption of renewable fuels, the RFS wins hands down in the “gallons to date” category. But one thing that LCFS fans like the best is that this standard has a way of driving right through blendwalls and continues to drive hard on carbon — fuels that deliver real carbon reductions can really spike under an LCFS — and that’s what we’ve been seeing in the hard data, to date.

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