New Mexico Clean Fuel Standard proposed, Counterpoints to CA LCFS report

As hot as John Travolta was in the ‘70s, an even hotter report from Jonn Axsen, Director of Sustainable Transportation Action Research Team and Michael Wolinetz at Navius Research is slamming California’s Legislative Analyst’s Office 2018 Low Carbon Fuel Standard report that had recommended the legislature rely more on the cap-and-trade policy instead of an LCFS. Also hot-off-the-press news that folks are lovin’ is the proposed New Mexico Clean Fuel Standard Act, a Governor’s priority bill that would bring an estimated $47 million in economic investments annually to the state while reducing greenhouse gas emissions from the transportation sector.

In today’s Digest, a look at the 5 counterpoints to the LAO Report’s conclusions as well as a look at Governor Michelle Lujan Grisham (D-NM)’s proposed New Mexico Clean Fuel Standard Act and what that means.

The case for LCFS – the Navius report

Let’s start with the Navius Report on the California LCFS which makes the case for a low carbon fuel standard and provides five counterpoints to the LAO Report’s conclusions using the evidence drawn from LCFS compliance data and peer reviewed literature. The Navius report says important data and literature is omitted, incorrectly relies on a comparison of credit prices as a proxy for cost-effectiveness, and relies on vague economic theory rather than data.

To sum up their 19 page report:

Counterpoint #1: The LCFS reduces GHG emissions in the present and future. Several studies indicate that LCFS policies have been able to contribute to shorter-term GHG reduction targets in California. In the longer-term, modeling studies also indicate that a stronger LCFS can play an important, complementary role in a well-designed policy mix that achieves deep decarbonization goals for the transportation sector.

Counterpoint #2: Policy mixes, which may include an LCFS, are needed for deep GHG mitigation. Although there are a few neoclassical economists that continue to argue for a single policy instrument (carbon pricing) to reduce GHG emissions to the necessary Paris levels by 2050, most researchers and policy analysts acknowledge that policy mixes are used and necessary in the real-world. No region has demonstrated the political will to achieve GHG mitigation goals solely through a strong carbon price. A policy mix, notably one that includes regulatory measures like an LCFS, can address multiple market failures (externalities, R&D spillover effects, oligopoly power), as well as more general “lock-in” to incumbent energy systems.

Counterpoint #3: The higher LCFS market credit price indicates that it is a strong and effective, rather than costly, policy. The LAO Report used a comparison of policy credit prices to incorrectly support its assertion that the LCFS is a more costly GHG reduction strategy than the cap-and-trade system. Rather, the higher credit price for the LCFS indicates that it is working. Research indicates that without LCFS policies, carbon prices would need to rise to between $100 and $200/tonne by 2030 for a developed country to be on track to achieve deep GHG reductions by 2050. In other words, the higher credit price is an indicator that the LCFS is having an impact and sending a price signal to drive the transition to lowcarbon fuels.

Counterpoint #4: The LCFS is more politically acceptable than carbon pricing (cap-and-trade or tax). Numerous studies show that a strong regulation (including the LCFS) receives much more support by citizens in the US and Canada compared to a carbon tax, and more support than a cap-and-trade system. Around 60-80% of citizens support an LCFS (including a stringent version requiring 80% carbon intensity reduction by 2050), compared to 22-30% support for a similarly stringent carbon price. Thus, a policy mix that relies more on regulations like an LCFS (rather than carbon pricing) is more likely to receive public support.

Counterpoint #5: The LCFS sends a transformative signal that results in more clean fuels for transportation. The LAO Report acknowledges that it is important for a climate policy to “promote technological innovation” (p2), though the authors did not try to assess such impacts for the LCFS. Reviewing the broader evidence of the LCFS’s ability to send a transformative signal, we find that the LCFS has helped to:

i) Reduce the average lifecycle carbon intensities of fuels: in California by 29% to 36% (from 2011 to 2019); and in British Columbia (2010 to 2018) by 45% for ethanol and 84% for biodiesel.

ii) Increase the quantity and variety of low-carbon fuels being used: from six in 2011 to 10 in 2019 in the California, including renewable diesel and renewable natural gas, where consumption has grown at 107%/yr and 75%/yr year respectively; iii) Support investment and adoption of new, low-carbon transport fuels and technologies. Studies identify the LCFS as being “vital” to the development of new, low-carbon fuels, such as hydrogen, biomethane, electrification, and renewable diesel and jet fuel produced from a variety of feedstocks.

In contrast, cap-and-trade does not provide a direct market signal to supply low-carbon transportation fuels, as that is not the purpose of the policy. Further, California’s emissions cap does not differentiate between high and low-carbon biofuels and so provides little to no transformative signal to reduce GHG emissions associated with biofuel production.

A well-designed LCFS has many positive attributes: it reduces GHG emissions, it can be cost-effective, it tends to be acceptable to citizens, and it sends a strong transformative signal to industry and other stakeholders to invest in, produce and otherwise transition to low-carbon fuels.

In contrast to the LAO Report’s conclusions, we argue that the LCFS should be considered as an enduring part of any decarbonization plan for several reasons:

• • The California LCFS has reduced GHG emissions and will have an important role in future GHG reductions;
  • Achieving GHG reductions goals requires the use of policy mixes in order to address multiple market failures that inhibit decarbonization and these policy mixes can be enhanced with the addition of an LCFS;
  • The LCFS is a stringent and effective policy, rather than being a costly policy;
  • A strong LCFS-style policy has much broader public support and is therefore more likely to be politically acceptable than a strong emissions cap or carbon price; and
  • The LCFS sends a clear transformative market signal for additional low-carbon transportation fuel supply and reductions in GHG emissions throughout the fuel supply chain.

Interestingly, Navius also recently projected that Canada’s GDP would grow by 1.9% – 2.1% annually between now and 2030 under the new carbon price recently announced in Canada.

Here is how projected GDP growth under the new carbon price (1.9% – 2.1% per year) compares to growth under the previous carbon price (2.1% – 2.3% per year).

New Mexico Clean Fuel Standard proposed

New Mexico could be soon joining the likes of California and Oregon who already have their own Clean Fuel Standard programs. The State of Washington is currently presenting a legislative proposal to begin a CFS program.

So let’s dive into the New Mexico bill. Who’s involved? Sen. Mimi Stewart and Rep. Nathan Small filed the New Mexico Clean Fuel Standard Act (Senate Bill 11), which is the first step taken toward implementing a market-based program to reduce greenhouse gas pollutants directed by Gov. Michelle Lujan Grisham in 2019’s Executive Order On Addressing Climate Change And Energy Waste Prevention.

The Governor’s priority bill would bring an estimated $47 million in economic investments annually to the state while significantly reducing greenhouse gas emissions from the transportation sector. The transportation sector is the second-largest source of greenhouse gas emissions in New Mexico behind the oil and natural gas industry.

If enacted, the Clean Fuel Standard Act will establish a market-based approach to cut greenhouse gas emissions from transportation fuels, requiring fuel producers and importers to reduce the amount of carbon in fuels used in New Mexico — a 10% reduction by 2030 and a 20% reduction by 2040. Fuel producers and importers can meet a lower carbon fuel standard by purchasing credits if they are not able to produce fuels that meet the carbon standard. Credits may be generated from any business in any sector of the economy – including the agriculture, chemical, dairy, energy, film, forestry, manufacturing, mining, oil and gas, waste management and wastewater treatment industries. The Clean Fuel Standard Act does not apply to retailers of transportation fuels, like gas stations.

The legislation requires the New Mexico Environment Department (NMED) to develop rules within 24 months of the bill becoming a law. The Clean Fuel Standards Act does not present a numerical standard for any fuel, as that will be selected during the NMED rulemaking process. The Clean Fuel Standard Act includes a $3.2 million appropriation for NMED to develop the rules to implement the Clean Fuel Standard Act.

A report by Adelante Consulting finds that industries related to the in-state production of low-carbon fuels could see significant job growth in New Mexico and $47 million in carbon-reduction investments if a CFS program is implemented.

Reaction from the stakeholders

“As the first state in the Southwest to seek a clean fuel standard program, we are blazing a path toward significant economic investments while tackling emissions that contribute to climate change,” said Gov. Lujan Grisham. “We must reduce the carbon intensity of our transportation fuels for the health and welfare of our communities – this program gets us there with the added benefit of significant clean energy investments.”

“I am proud to sponsor this priority legislation, which advances so many of the goals we have as a state: diversifying the economy, improving our environment and creating more jobs for New Mexicans,” said Sen. Mimi Stewart. “I am hopeful that my colleagues in the Legislature will also see the vast potential a Clean Fuel Standard has for New Mexico.”

“Cleaning up transportation fuels will create jobs, help diversify our economy, and fight catastrophic climate change,” said Rep. Nathan Small. “I’m excited to help New Mexico show how fighting climate change is good for business.”

Gettin’ Some Love

So far, the response to New Mexico’s proposed Clean Fuel Standard has been positive with California-based Low Carbon Fuels Coalition applauding the announcement. The Coalition is playing a leading role in helping shape clean fuel policy at the state and national level.

“This proposed legislation aligns with the Coalition’s mission to support market-based clean fuel policies in the United States,” said Graham Noyes, Executive Director of the Low Carbon Fuels Coalition. “New Mexico Senate Bill 11 is exemplary of the kind of solid policy that will drive innovation and economic development in low carbon fuels, while improving air quality and reducing waste streams. We look forward to working with the Governor on this important legislation.”

The legislation is supported by state agencies including New Mexico Environment, New Mexico Economic Development, New Mexico Energy, Minerals and Natural Resources, and New Mexico Agriculture.

“We’re tackling greenhouse gas emissions in New Mexico using science and innovation in our laws and rules,” said NMED Cabinet Secretary James Kenney. “Today, we are taking another step in transforming our economy away from carbon-emitting fuels to protect the health New Mexicans and to stem the impacts of climate change.”

“The Clean Fuel Standard will be good for economic development in New Mexico and continue the momentum we have established toward strengthening our economy and creating jobs right here at home,” said Economic Development Department Cabinet Secretary Alicia Keyes. “Supporting a Clean Fuel Standard will bring positive attention to New Mexico and once again tap into our spirit of innovation as we move toward economic recovery.”

“We look forward to the opportunities the Clean Fuel Standard Act will provide for New Mexico farmers, ranchers and dairy producers, who will be able to supply the biomass used to produce clean energy fuels,” said New Mexico Department of Agriculture Cabinet Secretary Jeff Witte.

“This important legislation complements a number of other laws and policies spearheaded by the Governor’s Climate Change Task Force,” said Sarah Cottrell Propst, Cabinet Secretary of the Energy, Minerals and Natural Resources Department. “The Clean Fuel Standard will reduce pollution from one of New Mexico’s largest-emitting economic sectors.”

Adelante Consulting, Inc., a New Mexico-based firm with expertise in market-based trading programs and a member of the Low Carbon Fuels Coalition, identified the adoption of a low carbon fuel standard in New Mexico as a key policy prerequisite to attract bio-based industry to the state in a feasibility study for Sandoval County, NM in 2020. “SB11 is a win for New Mexico’s environment and economy,” said Amy Brown, Chief Operating Officer for Adelante Consulting and a member of the Low Carbon Fuels Coalition’s Board of Directors.

Bottom Line

The proposed New Mexico Clean Fuel Standard will now make its way through the 60-day New Mexico legislative session. The press release encouraged New Mexicans to contact their legislators and ask that they support the Clean Fuel Standard Act (Senate Bill 11) – NM legislators and their contact information can be found here.

LCFS isn’t goin’ anywhere and today’s news highlights that many are willing to step up and speak up to encourage low carbon fuel standards to help the economy AND environment. And as data and science are showing, both are no longer mutually exclusive.