California’s LCFS Problems: winners, losers and everything in between
California law obliges state regulators to subject any proposed environmental regulation to scientific peer review. Under US law, the US courts have to strike down regulations that are not based on accepted science. So the peer review process is a prudent screen for any new standard.
I have written, many times before, that the CA LCFS process reflects "bad science". The LCFS process became captive to an exercise—the primary goal of which evolved into the development of a leading, complex full fuel cycle GHG model for transportation fuels ("CA-GREET").
The LCFS relies heavily on default emission factors and baseline estimates (called "Carbon Intensity" or "CI" values in the LCFS context) that are outputs from this model. The difficulty is that the model relies heavily on theoretical inputs and limited real data. The situation is so extreme that the modelers are unwilling to assign uncertainty factors or estimation error estimates to the default emission factors they have prescribed for the LCFS.
Two of the four peers who officially reviewed the LCFS (see the reviews here) were critical of the decision of the regulators to build such a complex regulation based on so little real data. For example, in her review, Dr. Denise, Mauzerall of the Woodrow Wilson School of Public Affairs said:
The carbon intensity (CI) values play a key role in determining whether a regulated party has complied with the LCFS rule…Given the level of uncertainty in such calculations, it is not advisable to have to many significant figures for each entry…In addition, it may be worth considering reducing the number of different subcategories for each type of fuel…establishing precise and accurate values for each pathway (e.g. 11 different pathways for ethanol from corn) will be impossible and attempting to do so [under a court challenge] will create an undue burden on regulators and opportunities for the regulated community to argue that the specifics of their pathway are not accurate…
Minimizing gCO2e emitted per vehicle miles travelled rather than gCO2e per MJ would be more effective at reducing total CO2 emissions. The emphasis of the LCFS is on reduction the gCO2e emitted per MJ of energy contained in the fuel. However, since the purpose of the standard is to contribute to reducing CO2 emissions form California, I am concerned that the units used are essentially penalizing efficient vehicles with low CO2 emissions per mile travelled…The LCFS in its current form can only be certain to be effective at reduction total CO2 emission if it is coupled with programs to improve fuel efficiency….
The emphasis on biofuels with 40% grown in California is undesirable…the CI of corn ethanol grown in California ranges from 77 – 96% of the intensity of gasoline [i.e. higher than the intensity of diesel fuel]. California water can be better spent on other things than growing fuel…compressed natural gas derives from landfill gas has a CI of 13 gCO2e/MJ and can be used as an alternative to diesel…
In her review, Dr. Valeri Thomas of the George Institute of Technology said:
That observed data have not been used to validate the…model findings is a significant weakness…The ARB staff has put a great deal of effort into thinking about the time dimension of [the problem of modelling the impact of ethanol demand on land use change]. Nevertheless, time-related issues are still addressed in a piecemeal way that makes some unjustified assumptions. A more comprehensive approach…would be simpler and more accurate. ARB could develop a more data driven and less model-dependent approach…"
What the peer reviewers do not mention—but is a VERY large concern for Canadians—is that on top of these emission factor uncertainty/data quality issues the original LCFS:
Obliges CA suppliers of gasoline and diesel to report these fuels separately and comply with the new standard discretely for each fuel.
This method precludes market shifting from gasoline to diesel fuels as a compliance option. In so doing, this regulation precludes a sustainable least cost GHG reduction option.
Obliges regulated entities to cut GHGs/unit of fuel sold by 10% from a 2011 baseline.
This procedure delivers competitive advantage to the oldest refineries in the US (many of which are located in California) at the expense of more efficient existing suppliers.
Gives the "regulated entities" the option of substituting verifiable data for default emission factors.
This procedure gives complete control to the major importers to game the CA rule to take advantage of the lack of real data to maximize global profits. (Most of the gaming opportunities incent global companies to take a hit on their Canadian product margins in exchange for the artificial profit inflation the LCFS delivers to their California value-adding and Persian Gulf operations. In the original rule, an entity in the CA supply chain does not have the option to present real data to address any unfairness inherent in the rule. And the opportunity to game the existing rule is a disincentive for some major market players to elect to make real data available to the regulators.
Provides an indirect subsidy to refineries that buy heavy oil produced from CA oil reserves.
And does so while artificially inflating the GHG factor for finished products derived from heavy oil that originates in Alberta and Venezuela. The LCFS accomplishes this by establishing 3 customized fuel "pathways" for California refineries. In these pathways, one single emission factor is assigned to a blended state-average crude feedstock. Between 25% and 33% of the crude oil used by CA refineries is heavy oil from in-state reserves.
Generally, the GHGs arising from the extraction of CA heavy oil are 15% to 25% HIGHER than the average GHGs associated with feedstocks from the Alberta and Venezuela oil sands. But 67% to 74% of the crude oil entering CA refineries is light, sweet crude, originating largely in the Persian Gulf. The CA LCFS (in my view) first understates the GHGs from the production of CA heavy oil, then understates the GHGs for a number of offshore sources of conventional crude, to create a very generous single blended GHG factor for all of the crude entering CA refineries. This method frees the CA regulators to assign excessive GHG penalties to finished products that rely on Alberta and Venezuela feedstocks while it protects CA oil producers from any similar penalty.
CARB staff have partially responded to a few of these and other stakeholder concerns with the "Draft Resolution 09-31" modifications. Surprisingly (but luckily for Canadian climate change negotiators), the staff modifications partially remove the trade bias in the LCFS that could derive from the %-reduction-from-based-year measure for performance. But the modifications also fail to address the more important-to-California issues outlined above. However, lucky for us, the emerging LCFS development and resolution and US court review process could form a precedent that Canadian climate change negotiators can and will want to refer to, as well as exploit, in the context of the broader Canada-US climate change negotiations.
So far, the recently published CARB staff-recommended modification would:
Compel regulated entities to put minimal fuel supply chain tracking systems in place.
This would allow them to present the regulator with some verifiable data. This requirement confers more power on upstream feedstock suppliers than they would have had under the original regulation, which left all decisions about whether real data could be substituted for default emission factors up to the CA-based retailers.
Compel the regulator to create an alternative compliance "method" that defuses the trade protection potential of the %-reduction-from-base-year measure of performance.
If the proposed modifications are approved by CARB, the regulator is obliged to use the CA-GREET model to annually estimate the state’s supply chain average GHG intensity given full compliance with the reduction schedule. Then, fuel suppliers will have the option of complying with the original percentage reduction performance measure, or applying to have their supply chain or portion thereof "certified to" the absolute GHG/unit of fuel sold estimate that the regulator publishes. This procedure still delivers some advantage to the higher emitting in-California supply chain, but after this change the protection afforded the in-state supply chain does not have to be at the expense of more efficient foreign suppliers.
Whether or not this option becomes a viable compliance option will depend, largely, on whether or not the state develops a bureaucratically burdensome or efficient procedure for opting for the GHG/unit of fuel compliance option.
In the official CARB resolution, the critical-to-Canadians modifications say:
Whereas the LCFS identifies " ‘carbon intensity’ as a measure – expressed in terms of grams of CO2 equivalent per mega-Joule (grams CO2E/MJ) – of the direct and indirect GHG emissions associated with each of the steps in the full fuel cycle of a transportation fuel (also referred to as “well-to-wheels” for fossil fuels, or “seed or field-to-wheels” for biofuels);and whereas the LCFS requires fuel suppliers to demonstrate a 10% reduction in GHG intensity from 2011 base year levels by 2020, the Program Administrator is obliged to create an alternative compliance method,
The regulator must now " require regulated parties to establish physical pathway evidence for transportation fuels they report; this could involve a four-part showing including a one-time demonstration that there exists a physical pathway by which the transportation fuel is expected to arrive in California…and an update to the initial physical pathway demonstration whenever there are modifications to the initially demonstrated pathway…
Mandate that the Executive Officer certify the carbon intensity values for various fuel pathways, including multiple pathways for some fuels to represent differences in how and where the fuel is produced…
Upon adoption of the LCFS regulation, the Executive Officer would publish a “Carbon Intensity Lookup Table” identifying the carbon intensity for a number of specific fuel pathways for which the carbon intensity values had been adequately developed for certification; the Executive Officer is authorized to subsequently certify additional or modified carbon intensity values in the Carbon Intensity Lookup Table.
For a regulated party identifying the carbon intensity value of the various fuels it is providing, use of the carbon intensity values in the Carbon Intensity Lookup Table is characterized as ‘Method 1’…
Canadian negotiators should note that the revised LCFS still protects higher emitting US refineries, by giving them the 10% reduction compliance measurement option. But it does not penalize more efficient foreign suppliers in the way the existing US Reformulated Gasoline and Renewable Fuel Standard do.
Canadian negotiators should use the LCFS development to date to illustrate why, at the product/sector level in the GHG context, the North American GHG standards should also, at least, incorporate the two compliance options: 17% below 2005 levels by 2020 OR specific annualized GHGs/unit-of-product sold GHG performance measure.
The new CA LCFS offers the option to choose. In most of the 10 critical GHG-intensive product classes, in the longer term, Canada would derive competitive advantage from the removal of the option and the introduction of the requirement that regulated entities comply with the "more stringent" of the two options. But Canadian negotiators should bank that negotiating play for another day.
Energy Probe 