Friday, January 7, 2011

Popping the Hood on California’s Low Carbon Fuel Standard, Pt 3: The CA LCFS & Electricity, Fair or Foul?

We published Part III of our Biofuels Digest series Popping the Hood on California's Low Carbon Fuel Standard on January 6th. Click here for the Biofuels Digest version or see below.

Popping the Hood on California’s Low Carbon Fuel Standard, Pt 3: The CA LCFS & Electricity, Fair or Foul?

By Brooke Coleman

Part III: The California LCFS & Electricity: Fair or Foul?

The California Low Carbon Fuel Standard (LCFS) is a potentially groundbreaking yet controversial policy. LCFS proponents say the policy is performance-based, and does not pick winners and losers. Critics say the LCFS uses inconsistent carbon accounting methodologies, which in turn advantages certain fuels over others.

Part I of this series – the LCFS Status Update – provided a brief update as to where the California Air Resources Board (CARB) stands with regard to LCFS implementation.

Part II of this series – the Low Carbon Double Standard – discussed the fundamental inconsistency and potentially serious consequences of penalizing one fuel (biofuel) for its perceived impact on the “resource margin” while overlooking these impacts for other fuels.

Part III of this series raises some questions about the carbon accounting methodologies used to carbon score electricity under the LCFS.

First, An Electricity Caveat

Neither the author nor the New Fuels Alliance is against electrification. The data suggests that when taking into account both the carbon intensity of the fuel and how it is used in the vehicle, electric vehicles offer climate, oil dependence, and air quality benefits over petroleum-fueled vehicles. Also, electricity and biofuels should not be considered an either/or proposition, as many classes of electric drive vehicles will continue to rely on liquid fuels in certain scenarios, and some forms of transportation cannot be electrified. But the New Fuels Alliance is strongly opposed to inconsistent carbon accounting that biases the LCFS against bio-based fuels and makes the policy less credible and durable over time. This article uses electricity as an example, to reinforce the point that carbon accounting irregularities exist and need to be fixed.

“Electricity is probably the most viable low carbon fuel for transportation in the near-term.”

The idea that electricity is the most viable low carbon fuel in the near-term is shared by many LCFS proponents. The statement above was included in an LCFS presentation released by NESCAUM, the group coordinating implementation of the Northeast Regional LCFS. During the April 2009 LCFS Board Hearing, CARB Board Member Dan Sperling, one of the chief architects of the policy, also highlighted electricity in the context of the LCFS, stating, “the big picture is we want to incentivize the use of electricity for vehicles,” (Hearing Transcript, p.341).

During the LCFS Board Hearing, CARB staff presented the following chart, detailing the carbon intensity (CI) value of electricity (second from right) relative to gasoline and other substitutes. The chart references electricity at 35 g/MJ, which is a 64 percent reduction over the California gasoline baseline (please note that the CI values for advanced ethanol are preliminary, and in most cases do not yet include indirect land use change penalties).

The question is: how did the CI value for electricity get so low? The LCFS Lookup Tables list electricity as having two different, much higher CI values – 124.10 g/MJ and 104.71 g/MJ – that are 29 percent and 9 percent more carbon intensive than California gasoline, respectively.

How Electricity Gets to 64 Percent Better Than Gasoline

The path to 35 g/MJ (shown in chart) has three basic phases.

Phase 1 establishes the CI value for electricity based on the average electricity mix (i.e. how electricity is produced currently in California). As discussed, this number is 124.10 g/MJ. In basic terms, this means that the average California electron today (before considering how it is used in the vehicle) is 29% more carbon intensive than the energy-equivalent unit of petroleum.

Phase 2 establishes a second CI value for electricity, by looking to the “margin” of the electricity sector. CARB assumes that the marginal electron – i.e. the “new” electron produced on the margin of the electricity sector to meet new theoretical demand for electric vehicles, as opposed to the average electron on the grid today for all uses – is produced from renewables and the most efficient natural gas turbines (NGCC). The logic is that marginal electrons are cleaner because of the anticipated market penetration of more efficient electricity production technologies. The result is a roughly 16 percent reduction in the electricity CI value from 124.10 g/MJ to 104.71 g/MJ (the second CI value contained in the LCFS Lookup Tables for electricity).

Phase 3 is the final step. CARB gets to the CI value shown in the chart above (35 g/MJ) by then taking the marginal electricity CI value of 104.71 g/MJ and dividing it by three to account for the efficiency benefits of the electric drive motor over the internal combustion engine. Put another way, CARB assigns a 3X reductive credit to the CI value of electricity based on the drivetrain efficiency of the electric motor, or what CARB calls “energy efficiency ratio” or EER (see: “EER=3.0” in chart), in comparison to the internal combustion engine. Together, phases 2 and 3 reduce the CI value for electricity by more than 70 percent, from 124.10 g/MJ to 35 g/MJ.

So Are These Adjustments Fair or Foul?

At first blush, there may not appear to be anything wrong with these adjustments. There is certainly such a thing as “marginal electricity,” and one could imagine it to be cleaner, at least in the hypothetical. Likewise, electric drive engines are more efficient than internal combustion engines, which unlike electric motors, convert more energy into waste heat than motion. But there are nonetheless major questions about whether these exogenous adjustments to the average electricity CI value are appropriate within the LCFS.

First, let’s consider the reduction from 124.10 to 104.71 g/MJ, achieved by assuming that marginal electricity is cleaner than average electricity, and providing a credit therein.

Problem #1 With Providing A Credit for Marginal Electricity

As is the case with indirect land use change, the first and foremost problem with looking to the margin of the electricity sector is one of consistency. The value of electricity under the LCFS is relative to petroleum, but CARB does not score petroleum based on the marginal impact. If it did, petroleum would have a significantly higher CI value because the marginal barrel is, on balance, significantly more carbon intensive than the average barrel of oil. This inconsistency, very similar to selectively going to the land resource margin for biofuels in the case of ILUC, creates an apples-to-oranges comparison between marginal electricity and average petroleum.

Some LCFS proponents, including CARB staff, have argued that renewables and the cleanest natural gas could be on the margin given that state policies encourage these outcomes. But this argument only compounds the concern about inconsistency. First, this speculation would have to be supported to be used in a regulation (and it appears not to be; see Problems #2 and #3). Second, speculative policy-induced efficiencies are not unique to electricity production. A wide variety of state and federal environmental laws require better performance across many sectors, and CARB does not take into account other policy-induced variables for other fuels.

Problem #2 With Providing A Credit for Marginal Electricity

Then there is the question of whether marginal electricity is cleaner. Truth is, it depends on the magnitude and timeline of the demand change. But at least one published report, from CARB Board Member Dan Sperling’s Institute for Transportation Studies (ITS), directly questions the assumptions made in the LCFS [emphasis added]:

“The [LCFS] assumes that marginal electricity comes from NGCC plants (79%) and renewable power (21%), with a GHG emissions rate of 104.7 gCO2 equiv. MJ−1 … [b]ut in the near-term, the likely marginal mix and GHG emissions rate will be quite different. Renewable power does not operate on the margin and marginal generation from dispatchable power plants is unlikely to come entirely from NGCC plants operating with average heat rates … the results here suggest that the marginal generation mix will be about 63% from NGCC plants and about 37% from NGCT plants, and marginal emissions rates will be more than 65% higher than in the LCFS.”

So what does the LCFS public record, which should support CARB’s assumptions, say about marginal electricity? The fuel pathway documents for electricity simply state that the assumption was made, and do not seem to provide any technical support for assuming that renewables and the most efficient natural gas turbines will be the source for marginal electricity generation in California.

In sum, the 16 percent credit for marginal electricity production is inconsistent, appears to lack technical support in the public record, and runs counter to a recent article published by the same UC-Davis group (ITS) that has conducted much of the technical analysis for the LCFS.

Second, let’s consider the CI value reduction from 104.71 to 35 g/MJ, achieved by applying a 3X reductive drivetrain efficiency credit (or EER credit) to electricity.

Problem #1 With Applying a Credit for Electric Motor Drivetrain Efficiency

Again, the problem does not involve the veracity of the claim that electric motors are more efficient than internal combustion engines. The problem is the application of this vehicle trait in a fuel regulation. The LCFS is designed to measure the CO2-equivalent (GHG) carbon intensity (i.e. the embedded carbon) in a unit of fuel. By including EER, CARB has reached outside of the unit of fuel to apply a credit for certain vehicle traits. It is certainly possible to define the “full carbon lifecycle” of a fuel as inclusive of both fuel and vehicle, with the resulting carbon score encompassing both how the fuel is made and how it is used. In this scenario, there would be a different unit of measurement – something like grams per mile – for determining the relative lifecycle CI values of different fuels. However, the LCFS is a fuel performance standard based on grams per mega joule. This incongruity only deepens when you consider the fact that drivetrain efficiency is taken into account elsewhere in the CA climate program (see Problem #2).

Problem #2 With Applying a Credit for Electric Motor Drivetrain Efficiency

In reaching outside of the unit of fuel to apply a credit for drivetrain efficiency, CARB has created redundancy and the potential for double counting. The LCFS is one part of California’s three-pronged approach to climate change. The others include Pavley/Clean Cars (to reduce GHG emissions from vehicles) and the stationary source emissions reduction requirements under AB32. Drivetrain efficiency is a vehicle trait eligible for credit under the Pavley, Clean Cars program. It remains unclear how CARB can offer a credit to automakers for a more efficient drivetrain under the Clean Cars program, and to oil companies under the LCFS (via utilities) for the very same drivetrain. Two entities should not be allowed to take credit for the same thing.

Problem #3 With Applying a Credit for Electric Motor Drivetrain Efficiency

There is also the issue of consistency. In reaching outside of the unit of fuel to apply vehicle traits, an issue arises as to what degree (and which) vehicle traits should be considered (if any). For example, CARB took into account one part of the electric vehicle (the drivetrain), but overlooked the higher GHG emissions from electric vehicle production, particularly with regard to the mining and smelting of battery metals and the manufacturing and recycling of batteries (many of which need to be replaced within the vehicle’s lifetime). These are not insignificant emissions, and were highlighted in an LCFS Expert Working Group report (p.65). Likewise, if the LCFS carbon scoring approach (i.e. system boundaries) includes how the fuel is converted to motion in a vehicle, thermal efficiencies (and inefficiencies) for fuels like natural gas should be taken into account.

CARB also seems to have violated its own principles for the (non-) use of outside credits under the LCFS. In shaping California’s three-pronged (vehicle-fuel-smokestack) approach to reducing GHG emissions, CARB established a position in which credits generated outside of the LCFS program (e.g. at power plants) are not allowed to be imported into the LCFS, because they would forestall innovation in the fuels sector. There is widespread support for this provision. However, CARB is allowing what amounts to a de-facto vehicle-to-fuels credit with EER adjustments. Vehicle-to-fuel credits run counter to the idea that the LCFS should encourage the production of lower carbon intensity fuel (i.e. as an individual part of the vehicle-fuel-smokestack equation) and that the LCFS should be protected from outside, potentially dilutive credit.

So Where Do We Go From Here?

For more than two years, the New Fuels Alliance has expressed its concern directly to California officials about inconsistencies in the LCFS. While the first phase of the program went into effect in California just this week, the rulemaking is effectively “rolling” with deliberations and regulatory adjustments ongoing. It is not too late to create a uniform definition of “full lifecycle” for all fuels, and make the appropriate modifications. It is easy to say that biofuel interests are standing in the way, because to date, we have the most to lose from the existing carbon accounting irregularities, and as a result, have been the most vocal critics of the program. But it is hard to see a political or regulatory future for, or significant investment stemming from, an LCFS lacking sound, durable and therefore predictable carbon accounting methodologies. The final installment will discuss a set of priority corrective measures for consideration by Digest readers and LCFS stakeholders.

Next and final installment: Critical Pieces of the LCFS Fix

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