F2M Market Watch
Posted on August 17, 2012 by Suz-Anne Kinney
A new study, The National Low Carbon Fuel Standard (LCFS) Study, released in July may just provide a path to an improved version of the Renewable Fuel Standard (RFS2). The purpose of the study, which was conducted by a group of researchers from UC-Davis, the Universities of Illinois and Maine, Carnegie Mellon, the Oak Ridge National Laboratory and the International Food Policy Research Institute, was two-fold:
- “Compare an LCFS with other policy instruments, including RFS2 and a potential carbon tax, that have the potential to significantly reduce transportation greenhouse gas (GHG) emissions from fuel use”
- “Propose a policy structure for an LCFS that would be easy to implement, cost effective, and provide maximum economic gains to the consumers and society”
The result is what researchers call “a hybrid of a regulatory and market policy instrument. It does not include mandates for any particular fuel or technology and as such does not attempt to pick winners or losers. Instead, it defines an average emissions intensity standard . . . that all energy providers must achieve across all fuels they provide. Many options exist for meeting the standard. Regulated parties are free to employ any combination of strategies that suits their particular circumstances and perspectives—including the purchase of credits from other companies.
”In the report, researchers lay out their recommendations for crafting this national low carbon fuel standard. Included in the thirteen recommendations are the following:
Set a target of reducing the carbon intensity (lifecycle GHG emissions) of gasoline and diesel by 10-15 percent by 2030.
- Include all fuels used in on-road vehicles, which account for 80.3 percent of total transportation fuel use in the US. Add fuels used for ships and aviation.
- Treat crude oils, a diverse mix of liquids with varying carbon intensity, as part of the overall pool of transportation fuels, thereby allowing companies to buy lower-CI crudes to meet part of the standard.
- Create separate fuel pools for gasoline and diesel to prevent regulated parties from just using diesel to meet the standard. Maritime and aviation fuels would also have separate fuel pools.
- Require those who produce, import or supply fuel to meet the standard.
- Harness market forces using LCFS credits, thereby providing the most flexibility in the way that companies can meet the standard.
The timing of this report could not have been better. RFS2 is currently on shaky ground for a number of reasons:
- The law is being challenged in Court and in the court of public opinion because it penalizes producers for failing to use fuels that don’t currently exist (read more).
- Most of the fuels being produced under standard are made from corn. With drought conditions rampant in corn-producing areas of the US, this year’s corn crop is expected to reach a 17-year low, causing prices to rise by 20-25 percent. With 40 percent of the crop going to produce ethanol, many in the livestock industry are calling for the standard to be waived this year and next.
Researchers suggest that RFS2 should be revised to incorporate the national LCFS or that the LCFS should replace it altogether. What are the chances that a national LCFS could pass through Congress and be signed into law? Dan Sperling, director of the national LCFS project and director of the Institution of Transportation Studies at the University of California told Ethanol Producer magazine reporter Susanne Retka Schill that he “expects the report to be received with open minds. When asked when what its chances are to become national policy, he said that six months ago he would have expected it to take years of discussion and work to get a LCFS through Congress. Now, with criticisms of the renewable fuel standard (RFS) rising, he thinks it could be sooner. . . . He also said there is such strong support for alternative fuels and biofuels for national security reasons and rural economic development impacts that an attempt to kill the RFS entirely would not be successful.” With its technology and feedstock neutral approach, an LCFS designed using the recommendations in the study may be just the solution we need.
