LCFS: Part 1: Status Update Part 2: Analysis

Part 1: CURRENT STATUS OF LOW-CARBON FUEL STANDARD LEGISLATION

FEDERAL LEGISLATION:

According to the Congressional Research Service, the Low-Carbon Fuel Standard Act of 2009, introduced 3/30/2009, proposes the following:

• Amends the Clean Air Act to require the Administrator of the Environmental Protection Agency (EPA) to issue regulations that:

(1) determine the lifecycle greenhouse gas emissions of all transportation fuels;

(2) determine the fuel emission baseline (i.e., average lifecycle greenhouse gas emissions per unit of energy of all transportation fuels sold in the United States in 2005);

(3) apply to refineries, blenders, and importers of transportation fuels;

(4) ensure that, for 2014-2022, annual average lifecycle greenhouse gas emissions do not exceed the fuel emission baseline; and

(5) ensure that, for 2023 and thereafter, transportation fuel providers make specified reductions in the annual average lifecycle greenhouse gas emissions for transportation fuels sold in the United States.

• Grants the Administrator authority to waive emission reduction requirements of this Act to prevent economic or environmental harm.
• Requires the Administrator to study the environmental and resource conservation impacts of the regulations required by this Act and their effect on energy security.

STATE UPDATES:

On April 23, 2009, the California Air Resources Board (ARB/Board) approved the low-carbon fuel standard (LCFS) regulation. As part of the Board hearing, the Board approved Resolution 09-31 (Resolution). The Resolution includes a number of provisions related to ongoing work on the LCFS. One such provision relates to land use and indirect effect analysis of transportation fuels.

· The Board-approved Resolution reads: “BE IT FURTHER RESOLVED that the Board directs the Executive Officer to convene an expert workgroup to assist the Board in refining and improving the land use and indirect effect analysis of transportation fuels and return to the Board no later than January 1, 2011, with regulatory amendments or recommendations, if appropriate, on approaches to address issues identified."

· While California has adopted a low-carbon fuel standard, a number of Northeastern states are also looking at the idea, as is the Midwest. Several other states, including Minnesota and Wisconsin, are considering adopting a low-carbon fuel standard.

Part 2: ANALYSIS

· According to the hardly conservative New York Times, Green, Inc., "A low-carbon fuel standard is likely to do little to reduce global warming emissions and can even be counterproductive." This conclusion was based upon an academic paper entitled Greenhouse gas reductions under low-carbon fuel standards by Stephen Holland, Jonathan Hughes, and Christopher Knittel published in the highly-esteemed American Economic Journal: Economic Policy, 2009. The study found that the policy reduces consumption of high-carbon fuels like oil, but “increases low-carbon fuel production, possibly increasing net carbon emissions.”

· While a low-carbon fuel standard requires that the mix of transportation fuels sold to automobiles or trucks include only a limited percentage of carbon-intensive fuels, the idea is to cut carbon emissions from driving, since transportation accounts for more than a quarter of the country’s greenhouse gas emissions.

· The Holland, Hughes, Knittel Economic Journal article starkly concludes that a low-carbon fuel standard “cannot be efficient.”

· One problem with a low-carbon fuel standard is that it could be extremely costly. The research says that a 10 percent reduction in the carbon intensity of fuels could result in abatement costs ranging from $307 to $2,272 for each ton of carbon dioxide.

• That is roughly 100 to 700 times the price of carbon dioxide emissions allowances now traded in the Regional Greenhouse Gas Initiative, a program in 10 Northeastern states to combat global warming by cutting power plant emissions.

· A related problem is that rather than cutting fuel use across the board, such a fuel standard would encourage drivers to increase their consumption of “low-carbon fuels,” and thus theoretically increase the overall amount of fuel consumed.

· Stephen Holland, an assistant professor in the Department of Economics at the University of North Carolina at Greensboro and one of the study’s authors, cited an analogy of a child who eats two chocolate bars but no bananas, and is told he has to increase his banana consumption. The result is that he eats two bananas and two chocolate bars, which increases his overall calories.

· Similarly, the low-carbon fuel standard is “regulating the mix, but not the levels,” he said.

· The easiest way to cut carbon emissions from transportation is to cut the level and “not drive so much,” Mr. Holland said. “Carpool! Take public transportation! Leave the car at home.”

As has been publicly argued about for the past several years, the largest controversy surrounding low-carbon fuel standards involves ethanol, and in particular how to compute the carbon cost of corn ethanol (the issue at hand in California).

· Mr. Holland, who said that ethanol was the primary fuel involved in the study, said that he used a range of assumptions about ethanol, but that since the study had gone to press, he had taken the view that corn ethanol was more carbon-intensive than the paper had accounted for.

· Finally, a low-carbon fuel standard would disallow the importing of Canadian crude from Alberta, making Minnesota and much of the upper Midwest more dependent on crude from political enemies in the Middle East. With all the economic worries our globalized economy confronts each day, deriving oil from our friendly neighbor to the north seems both prudent and reliable.