Saturday, March 14, 2009

AB 32 and Low Carbon Fuel Standard

Under California's recent law to control economic activity in an attempt to place slightly less carbon dioxide into the atmosphere, AB 32, a significant feature is the extremely controversial Low Carbon Fuel Standard (LCFS).   

The Air Resources Board, ARB, published more than 700 pages last week, providing in some detail the description and calculations that went into the LCFS.  

ARB has contradicted itself with the ethanol portion of the LCFS, by claiming on the one hand that adding corn-based ethanol to gasoline reduces CO2, then stating in the detailed calculations that manufacturing ethanol produces more CO2 than is reduced when vehicles burn the ethanol. 

The LCFS is designed to change transportation fuels, gasoline and diesel, away from fossil-fuel based hydrocarbons and toward less carbon intensive fuels.   Gasoline is to contain 10 percent by volume ethanol by 2020.   The LCFS is already controversial, and at least one lawsuit was filed against ARB over LCFS.  Part of the controversy is that ethanol from agriculture is to be blended into gasoline.  Ethanol from fermentation is not a low-carbon process, as ARB spells out in some detail.  In fact, ARB concludes that ethanol from fermentation of corn is a net positive producer of greenhouse gases, GHG.   This arises because manufacturing ethanol from corn fermentation places approximately 1.17 pounds of CO2 into the atmosphere for every 1.0 pound of petroleum-derived CO2 removed from the atmosphere. 

For some high-level perspective, the LCFS contribution to the entire AB 32 carbon reduction (169 MMTCO2e/y) is 15 MMTCO2e/y, a bit under 10 percent of the total.  For comparison, 169 is 3o percent of California's emissions expected in 2020, and California's emissions are 2 percent of the world's emissions.  Thus, the LCFS, even if fully implemented and as effective as ARB states it will be, will reduce world-wide CO2e emissions by 10 percent of 30 percent of 2 percent, or 0.06 percent.   From a cost/benefit analysis, one could question whether such a small benefit, 0.06 percent of world emissions, is justified by the huge costs.  

One of the most controversial aspects of the LCFS is the determination of energy consumed to produce a gallon of ethanol, ready for blending into California gasoline.  ARB calculated and summed together the energy requirements for farming, agricultural chemicals, harvested corn transportation to corn refineries, ethanol production in the refineries, ethanol transportation via rail and trucks to California, and distribution to gasoline blending points.  The energy required for all those activities is 97 Btu for each 100 Btu obtained from burning ethanol in an engine.   

Then, ARB deducted 10 Btu by allowing for energy content of non-ethanol co-products from the corn refineries.  Such co-products include DGGS, a granular feed suitable for livestock.   The net energy then was 87 Btu per 100 Btu ethanol.  

The next, and most controversial step in the view of many, is that ARB added 30 Btu per 100 Btu ethanol for land use changes, for a total of 117 Btu per 100 Btu ethanol.  The land use changes are included to account for deforestation to convert land to corn cultivation.   

For comparison, production of gasoline and diesel requires approximately 18 Btu per 100 Btu produced upon burning.   

What is interesting is that ARB takes great pains to account for energy inputs, co-products, and land-change effects for ethanol production, but does not do the same for petroleum-based gasoline.    For example, oil refineries are similar in some respects to corn refineries, in that they both have multiple products.  Not all of the products are fuels.   As stated earlier, corn refineries make ethanol, a fuel, and DGGS, an animal feed.  Similarly, oil refineries produce gasoline, jet fuel, diesel fuel, propane and butane, and petroleum coke, all of which are burned as fuel.  However, oil refineries also produce a significant portion of their yield as products which are never burned.  These products include lubricating oils, waxes, asphalts, solvents, and petrochemical feedstocks.  

It is of course true that California oil refineries do not manufacture petrochemical feedstocks, nor is their lubricating oil and wax production significant.  They do, however, produce asphalt.    This inconsistency in ARB's approach to energy analysis is puzzling.  

Another aspect of the LCFS is trading and banking carbon intensity credits.  A carbon intensity credit will be issued for those who go beyond the mandated low-carbon levels for transportation fuels.  The mandated carbon intensity levels will decrease over time.    This is similar to a cap and trade scheme.  The carbon intensity of gasoline and diesel will decrease, starting in 2011, and become 10 percent less by 2020.   The year 2010 is a reporting-only year. 

Yet another aspect of the LCFS is the range of transportation fuels that are included.  As shown below, this is not limited to gasoline and diesel fuel.  The fuels included are:

• California reformulated gasoline;
• California ultralow sulfur diesel fuel;
• Compressed or liquefied natural gas;
• Electricity;
• Compressed or liquefied hydrogen;
• Any fuel blend containing hydrogen;
• Any fuel blend containing greater than 10 percent ethanol by volume;
• Any fuel blend containing biomass-based diesel;
• Neat denatured ethanol;
• Neat biomass-based diesel; and
• Any other liquid or non-liquid fuel not otherwise exempted from the regulation. 

An interesting aspect of the proposed regulation is the Opt-In provision, under which providers of the following transportation fuels may generate carbon credits for sale:

• Electricity;
• Hydrogen and hydrogen blends;
• Fossil CNG derived from North American sources;
• Biogas CNG; and
• Biogas LNG.

There is a reporting and record keeping requirement, with reports made quarterly and annually via an internet-based system to be provided by ARB.  

A complication in the regulation is the determination by each regulated entity of the carbon intensity for its specific method of producing the low-carbon fuel.  As an example, there are several processes for ethanol, including dry-mill corn, wet-mill corn, and cellulosic ethanol.  ARB provides two alternatives for carbon-intensity calculation: first, one may use ARB's pre-determined numbers for a specific pathway, and second, one may obtain ARB approval for calculations for unique processes.  

The public comment period is now open for the LCFS, and ARB is accepting comments at this website.

The ARB will hear the matter on April 23, 2009, and will very likely adopt the standard at that time.  

Nothing in this comment is to be construed as, nor is it intended to be, legal advice, and nothing written here creates an attorney-client relationship. Anyone seeking legal advice should consult a qualified attorney.

Roger E. Sowell, Esq. 
Climate Change Attorney
To contact Mr. Sowell, click here.


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