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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New Study on Military & Oil GHG Emissions

Biofuels Digest published a commentary today authored by the New Fuels Alliance reflecting on the recent article published by Adam Liska and Richard Perrin about the military greenhouse gas (GHG) emissions associated with protecting maritime oil pipelines.

Those who dismiss the idea of adding a certain fraction of military emissions to the carbon intensity (CI) value of certain petroleum fuels seem to misunderstand how expansive the carbon lifecycle system boundaries have become with the inclusion of indirect land use change for biofuels. Consistency is key. Here is the article:

Securing Foreign Oil: A Case for Including Military Operations in the Climate Change Impact of Fuels

By Brooke Coleman, New Fuels Alliance

Securing Foreign Oil is the title of Adam Liska’s and Richard Perrin’s recent article in Environment Magazine detailing why military emissions should be included in the carbon intensity (CI) values of petroleum fuels. The article was discussed on the New York Times Green blog and will no doubt spark debate about whether we are taking things too far by considering military emissions.

The case for including military emissions in the CI value of petroleum is pretty simple: it is well within the new system boundary recently established by U.S. EPA and the California Air Resources Board (CARB) for carbon scoring fuels.

The logic goes something like this.

For years, the carbon score of a particular fuel was determined by adding up the supply-chain emissions associated with producing, transporting and using the fuel from cradle to grave. In this scenario, it is possible to argue that military emissions are fair game, but it is not obvious.

More recently, EPA and CARB expanded the scope of consideration for carbon accounting to include indirect land use change (ILUC). ILUC is the theory that the use of land for biofuels deprives someone else of using the land, which in turn drives the other entity (e.g. food or animal feed production) to new land. So even though the land is cleared by someone else, and the biofuel entity is not associated with this land clearing in any direct way, biofuels are penalized for being indirectly associated with this outcome as part of the world economy.

The decision to include this alleged “indirect effect” for biofuels fundamentally changes what is fair game for carbon accounting. First, the effect can be well outside of the supply chain of the fuel. Second, it does not matter that there are more proximate causes of the effect (i.e. in the case of pushing food producers to new land, the more proximate cause of the land clearing in question is food production itself). Third, regulators are willing to ascribe 100% of this modeled effect to one cause (biofuels), even though “[a]t the underlying level, tropical deforestation is … best explained by multiple factors and drivers acting synergistically rather than by single-factor causation, with more than one-third of the cases being driven by the full interplay of economic, institutional, technological, cultural and demographic variables.”

So, let’s look at the article through this lens.

First, the (military) effect is arguably within the supply-chain of petroleum. The article focuses on the subset of military expenditures dedicated to securing the maritime oil pipeline from the Middle East, because “warships are to oil what combine harvesters are to biofuels.” Even if you disagree with this statement, the warships that “protect energy commodity tankers and their attendant facilities from attack” (as the U.S. GAO puts it) are certainly more associated with oil production than biofuels are with land converted for animal feed in Brazil.

Second, unlike with biofuels and ILUC, there is no more proximate cause for the existence of these warships and military expenditures than oil. The commitment of warships to maritime energy pipeline security is explicitly for protecting the passage of oil to the U.S. marketplace.

Third, the fact that war is waged for a variety of reasons (energy, power, threats to key allies) does not render the inclusion of military emissions for oil any more questionable. This is true for two primary reasons: (1) instead of allocating all military emissions to oil, the researchers focus on maritime pipeline security, a military practice directly attributable to oil production and dependence ; (2) CARB and EPA have already demonstrated their willingness to take an outcome (overseas land conversion) that occurs as a result of “multiple factors and drivers acting synergistically” and ascribe it to the lifecycle of one variable (biofuels).

Liska and Perrin allocate about 20 percent of the Department of Defense budget to oil security. If they were to follow the lead of the ILUC movement, they would apply all of it to the lifecycle of oil, playing the “single factor causation” game touted as good science by some ILUC researchers.

Now for a couple of final points.

There is no easy out for biofuel critics. The study comes from two University of Nebraska professors who not only did not take biofuels or agriculture money to write the article, but have never taken money from the biofuels industry, corn groups, or any other fuel entity. The article is a direct descendant of a previous article funded by the University of Nebraska’s Center for Energy Sciences Research entitled Indirect land use emissions in the life cycle of biofuels: regulations vs. science. Liska and Perrin generally rely on DOE, USDA funding, and recently took a grant from the Environmental Defense Fund to analyze petroleum. This cannot be said of many of the most vocal ILUC researchers, who have taken money from oil companies directly and indirectly to do the ILUC work through BP’s Energy Biosciences Institute (2009 Annual Report, p. 78) and the Institute for Transportation Studies (2008 Annual Report, pp. 44-45).

Finally, the article should be lauded for painting a very clear picture of where we are going in terms of foreign oil dependence. It discusses the sheer magnitude of military GHG emissions, points out that OPEC nations hold an increasing percentage of a dwindling world oil supply, highlights the extreme economic costs of foreign oil dependence, and buttresses its case that war and oil are intertwined.

Carbon accounting aside, the authors do a great job of capturing the unsustainable path we are on, both economically and environmentally. This is the big picture often lost in the inaccessible world of carbon accounting.
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A Nice Dose of Honesty About Indirect Land Use Change

Articles that cut through the fog on indirect land use change are few and far between. But the latest update from the Agricultural and Resource Economics Department at UC-Berkeley, entitled Indirect Land Use: One Consideration Too Many in Biofuel Regulation does just that.

The article concludes that penalizing biofuels for indirect land use change: (1) contradicts a basic principle of regulation by holding a regulated party accountable for actions well outside of their control; (2) may be irresponsible given that the land use impacts depend on so many variables and cannot be predicted with precision; (3) is inconsistent because so many other indirect effects are ignored by current regulations; and, (4) may have the perverse result of undercutting advanced biofuel investment.

The article concludes by saying that "[r]emoval of [indirect land use penalties] from LCAs will present an improvement of biofuel regulations." The article will sound familiar to NFA members, but is worth a read.
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Oil Grandfathered Under CA LCFS???

Over the last several weeks, NFA has expressed concern over the California Air Resources Board's proposal to grandfather petroleum under the CA LCFS. The proposal stands in stark contrast to how they treat biofuels, and runs counter to the idea that the LCFS is a performance-based standard.

We sent the following email to northeast LCFS stakeholders, asking for this type of approach to be rejected by northeast policymakers.

As you may know, the New Fuels Alliance (NFA) has expressed concerns about the way in which oil is treated in the CA LCFS. The issue stems from the potential lack of supply chain accountability for petroleum pathways. The problem resurfaced last Monday (3/29) in the context of the first Crude Oil Screening Work Group mtg hosted by the CA Air Resources Board (ARB). The work group is part of the CA LCFS process and will develop screening protocols for high carbon intensity crude oil (ie crude that has a production and transport value greater than 15g/MJ).

During the meeting, ARB announced its intent to “grandfather” all petroleum fuel pathways originating in any one of the 8 countries/regions (CA/AK/Saudi Arabia/Ecuador/Iraq/Brazil/Mexico/Angola) that comprise the 2006 petroleum regulatory baseline. This controversial policy decision would result in heavy crude qualifying as the lower carbon baseline fuel, even if the actual crude has a significantly higher carbon profile. It is also worth noting that this gives oil an additional “free pass” in the context of the CA LCFS. As noted in an earlier memo from NFA, the current LCFS allows petroleum derived from thermally-enhanced oil recovery to receive the lower 96g/MJ average petroleum score, even though its actual emissions are 15 percent higher than 96 g/MJ. The latest proposal from ARB would allow oil from the 8 grandfathered countries/regions, irrespective of its actual carbon intensity value, to bypass the high carbon intensity crude oil screening process that will be developed as part of the Crude Oil Screening Work Group. These 8 regions supply 95% of CA’s petroleum market.

The New Fuels Alliance strongly opposes this policy because it is in direct conflict with the goals of the LCFS, namely to be performance-based, reduce the carbon intensity of fuels, and to promote clean technologies. We urge policymakers and regulators in the Northeast/Mid-Atlantic region to build a program that properly enforces supply-chain accountability for all fuels and closes loopholes for oil.

The ARB website for this work group is available at:
http://www.arb.ca.gov/fuels/lcfs/lcfs_meetings/lcfs_meetings.htm
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EPA Releases RFS-2

We released a statement today applauding the release of the federal RFS-2 regulation. Hopefully, this will help put to rest the perpetual and misleading public debate about conventional biofuels being worse than gasoline for climate, so that we can focus our energies on the commercialization of advanced biofuels. Only biofuels pay for indirect, economically-derived carbon emissions in the EPA carbon accounting methodology, which is something that needs serious work. But even with selective enforcement of indirect effects, conventional and advanced biofuels are 20-60% better than gasoline, as required by law.

Statement in Response to Release of Federal RFS-2 Regulation
_________________________________________________________________________

FOR IMMEDIATE RELEASE

February 3, 2010

New Fuels Alliance Applauds U.S. EPA’s Commitment to Implementing the Federal RFS in a Timely Manner While Recognizing the Need for Additional Analysis

Boston, MA – The New Fuels Alliance, a national coalition of bio-based fuel companies and stakeholders, releases the following statement in response to U.S. EPA’s release of the federal Renewable Fuel Standard 2 (RFS2) regulation:

“Regulatory certainty is the catalyst for moving forward with the continued evolution of the U.S. biofuels sector. We now know that RFS-2 will apply this year, and that a large suite of both conventional and advanced biofuels meet the stringent greenhouse gas (GHG) requirements of the new program. It is now clear that conventional biofuels made from corn and soybeans reduce GHG emissions, and are a step in the right direction in terms of reducing the carbon footprint of the U.S. transportation fuel sector. It is also clear that we need to focus more energy on commercializing second generation biofuels made from a larger suite of feedstocks and using the most advanced technologies. The Obama Administration’s Biofuels Plan reinvigorates that process,” said Brooke Coleman, Executive Director, New Fuels Alliance.

“While we do not support the selective enforcement of indirect effects, in the form of indirect land use change, U.S. EPA has adopted a program that recognizes the uncertainty in today’s land use science and commits to ongoing analysis. All fuels have indirect effects, and the most immediate concern should be taking into account the market-mediated effects of petroleum and crediting biofuels for the avoidance of the dirtiest types of oil production, including gasoline and diesel fuel made from tar and oil sands. The idea that only biofuels cause indirect, market-mediated carbon emissions is not scientifically defensible. However today’s overall action is a good start,” said Andrew Schuyler, Regional Director, New Fuels Alliance.
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NFA & 20 Companies Submit Letter To Senators Boxer and Kerry Regarding Land Use Change

With Congress arriving back this week from August recess, the New Fuels Alliance submitted a letter co-signed by 20 leading advanced biofuel companies to Senators Boxer (D-CA) and Kerry (D-MA) asking for balanced carbon accounting in any upcoming climate legislation.

The letter comes in the wake of the "Peterson-Waxman agreement," which postponed the enforcement of international indirect land use change penalties as part of the climate bill passed by the House in June 2009. The letter asks the Senators to protect the advanced biofuels from asymmetrical carbon accounting -- instilled by the selective enforcement of indirect carbon emissions against biofuels only -- as part of any climate/energy legislation passing through the U.S. Senate.

The crux of the letter, included below, is the following:

"To be clear, we strongly support “full lifecycle carbon accounting” for all fuels (including the land used to produce biofuel feedstock) and oppose efforts to shield biofuels from legitimate sources of emissions. However, the definition of “full carbon lifecycle” must be the same for all fuels, and indirect carbon effects should not be enforced selectively or prematurely on a temporary or permanent basis. Asymmetrical carbon accounting will only undermine promising new fuel policies and weaken capital investments in advanced biofuels."

Full Letter pasted below:

September 9, 2009

Senator Barbara Boxer
United States Senate
112 Hart Senate Office Building
Washington, D.C. 20510

Senator John F. Kerry
United States Senate
218 Russell Building
Washington, D.C. 20510

RE: Indirect Land Use Change & Fair Carbon Accounting Under the Federal RFS

Dear Senator Boxer and Senator Kerry,

As leading Massachusetts and California-affiliated companies in the advanced biofuel sector, we are writing to clarify our position regarding the enforcement of indirect land use change (iLUC) penalties against biofuels under the amended Renewable Fuel Standard (RFS). As you know, this issue was at the center of negotiations between Chairman Waxman and Chairman Peterson pursuant to the American Clean Energy & Security Act, and was discussed in recent Senate committee hearings.

The Energy Independence and Security Act of 2007 expanded the federal RFS so that by 2022, the United States will use 36 billion gallons of renewable fuels each year. The intent was to reduce foreign oil dependence, create jobs and stimulate advanced biofuel commercialization. The Act contains aggressive greenhouse gas (GHG) requirements for newly produced biofuel gallons, ranging from 20-60 percent reductions in comparison to a 2005 gasoline or diesel baseline. In establishing the GHG thresholds, Congress clearly intended for EPA to conduct a fair, science-based comparison between a gallon of biofuel and a gallon of petroleum-derived fuel.

The science of carbon accounting is complex. However, it is clear that a valid comparison of two types of fuel depends on a common set of system boundaries so that one fuel is not debited for a category of emissions not enforced against the other fuel. Symmetrical and dependable carbon accounting is particularly important for advanced biofuel companies, which rely on investments made in response to, but executed well in advance of, a regulation like the RFS. Inconsistent carbon accounting methodologies will chill critical investments in the advanced biofuel sector, which in turn will put the RFS at risk.

Unfortunately, the legitimate concern about land use and forest protection that has emerged over the last two years has complicated the science of carbon accounting and made well-intentioned efforts to improve U.S. fuel policy more controversial. EPA’s recently proposed RFS rule offers case in point. While we commend EPA for its preliminary efforts to consider all possible carbon impacts from transportation fuels, their current methodology treats biofuels and petroleum-derived fuel inconsistently. The point of controversy is EPA’s preliminary decision to enforce “indirect land use change” penalties against biofuels. This is problematic for three reasons: (1) biofuels are being penalized for indirect carbon effects while petroleum is not, setting up an inconsistent system boundary and an asymmetrical comparison between the fuels; (2) indirect effects are incredibly difficult to predict with any precision, especially using economic models not designed for direct regulation; and (3) there are public policy questions related to the fact that indirect land use change is not the land cultivated to produce biofuel feedstock, but rather is the land expansion theoretically occurring on the margins of the agricultural sector for food, feed and fiber production, allegedly driven there by higher biofuel demand; as such, indirect land use penalties on biofuels amount to shifting the direct land use impacts of food, feed and fiber production to the biofuels carbon score without clearly establishing cause and effect. [1] Carbon shifting also confounds the underlying regulatory principle of “polluter pays” and raises major carbon accounting problems within the context of a carbon cap and trade program.

It is also clear that “land use change” is not the only significant indirect carbon effect of using more biofuels. For example, using more biofuel replaces demand for the next gallon of petroleum introduced into the system (i.e. the marginal oil gallon), which will be produced using far more carbon-intensive practices (e.g. tar sands, thermally-enhanced oil recovery, heavy crude, etc.). Crediting biofuels for this real world indirect benefit also corrects the asymmetry of comparing marginal biofuel gallons to average 2005 gasoline or diesel, which is a mythical baseline that will get much dirtier over time. Even Saudi Arabia, home to the largest light crude reserves in the world, is beginning to move away from light sweet to sour fossil crude oil.

Proponents of assessing indirect effects penalties against biofuels often argue that they only impact traditional biofuels like grain ethanol, and actually help advanced biofuels. It is true that conventional biofuels bear the brunt of iLUC penalties to date. However, selective enforcement of indirect effects also threatens the advanced biofuels sector. For example, some environmental groups would like to see a Low Carbon Fuel Standard (LCFS) eventually replace the federal RFS. However, preliminary numbers released as part of the California LCFS rulemaking indicate that selective enforcement of indirect effects increases the carbon score of some advanced biofuels by more than 200 percent. This selective penalty erases or greatly reduces the carbon-advantage advanced biofuels have over electricity, hydrogen and natural gas, which are not being debited for indirect carbon effects of any kind. To be clear, we strongly support “full lifecycle carbon accounting” for all fuels (including the land used to produce biofuel feedstock) and oppose efforts to shield biofuels from legitimate sources of emissions. However, the definition of “full carbon lifecycle” must be the same for all fuels, and indirect carbon effects should not be enforced selectively or prematurely on a temporary or permanent basis. Asymmetrical carbon accounting will only undermine promising new fuel policies and weaken capital investments in advanced biofuels.

As an emerging fuel sector, we are eager to compete in the marketplace and generally support policies that properly account for the carbon impacts of bio- and petroleum-based fuels. Indirect effects need not be ignored, but the misapplication of indirect effects will result in serious and unintended consequences. For example, attempting to protect undisturbed lands by adding the direct land conversion emissions of the food, feed and fiber industry to the biofuels carbon score (via indirect land use change penalty) will not change the behavior of these industries or dissuade illegal logging and cattle ranching, which are the direct cause of rainforest degradation, but will destabilize a promising new, low-carbon renewable fuel industry. A better way to prevent indirect land use change is with dynamic treatment of direct land use, so that biofuel feedstock producers have policy incentives to use marginal or idle land, crop rotations, and less carbon-intensive farming, which will in turn minimize the land footprint (and indirect effects) of future biofuel gallons. With regard to the world’s most important and diverse ecosystems, these resources should be protected directly from the practices that threaten their existence.

As you know, an agreement between Chairmen Waxman and Peterson would prohibit EPA from considering GHG emissions from international indirect land use changes when implementing RFS II for at least 5 years. The agreement calls on the National Academy of Sciences to lead a comprehensive study of indirect carbon effects. The issue of indirect land use change has already surfaced in Senate deliberations about climate change legislation. It is critical to the advanced biofuel industry that any climate or energy bill coming out of the U.S. Senate protects the advanced biofuels industry from asymmetrical carbon accounting and embodies a steadfast commitment to a level regulatory playing field.

The advanced biofuel sector looks forward to meeting the challenge set forth by the federal RFS and playing a central role in the Obama Administration’s clean energy agenda. We hope you will support our efforts and look forward to working with you.

Sincerely,

Brooke Coleman
Executive Director
New Fuels Alliance

Andrew Schuyler
Director, NE Region
New Fuels Alliance

Christopher G. Standlee
Executive Vice President
Abengoa Bioenergy

R. Michael Raab
Chief Executive Officer
Agrivida

Necy Sumait
Executive Vice President
BlueFire Ethanol

Joe Dahmen
Chief Executive Officer
Bodega Algae LLC

David R. Rubenstein
Chief Operating Officer
California Ethanol + Power

Larry Lenhart
President & CEO
Catilin, Inc.

Richard Hamilton
Chief Executive Officer
Ceres, Inc.

William Roe
Chief Executive Officer
Coskata, Inc.

Bill Haywood
Chief Executive Officer
LS9, Inc.

Bruce Jamerson
Chairman
Mascoma Corporation

Corinne Young
Director of Gov’t Affairs
Myriant Technologies, LLC

Colin R. South
Chief Executive Officer
Novogy Inc.

Harrison Pettit
Director, Business Dev.
Pacific BioGasol LLC

Curt Felix
Chief Executive Officer
Plankton Power

Rahul Iyer
Executive Vice President
Primafuel, Inc.

Jef Sharp
Executive Vice President
Qteros, Inc.

Bill Schafer
Senior Vice President
Range Fuels, Inc.

Tim Zenk
Vice President, Corp. Affairs
Sapphire Energy

John Howe
Vice President, Public Affairs
Verenium Corporation

Jim Imbler
Chief Executive Officer
ZeaChem Inc.
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Conversation with NRDC's Nathanael Greene

The New Fuels Alliance and the NRDC do not agree on how indirect carbon effects should be applied in carbon regulations. The latest dialogue occurs on Nathanael Greene's blog; the thread is available here.

Nathanael asked NFA to "put up or shut up" with regard to the indirect effects of petroleum fuels. Our response is pasted below for your convenience.

Nathaniel,

Thank you for the response. As an advocate, I think I should probably put up rather than shut up, or find another job! A good debate is always worth having.

NRDC POSITION
It is one thing to say NRDC is for accurate accounting for all fuels. We are as well. It is another to specifically say that if indirect effects are included for biofuels they should be included for petroleum to maintain parity in the comparative analysis (i.e. apples to apples). NRDC has not done the latter. NRDC arduously

defended the selective enforcement of indirect effects under the CA LCFS and criticized other groups that asked for parity. You want all fuels to pay for attributional carbon (or direct effects) and biofuels to pay for consequential (indirect) effects as well. Your rationale is that other fuels do not have significant consequential (or indirect effects). But there is no data to support that position, and the limited data available suggests otherwise.

INDIRECT EFFECTS OF PETROLEUM
Again, my point is that if you think indirect effects should be included for biofuels – i.e. the LCA boundary should be expanded for biofuels to economically-derived effects – I would think that NRDC would push for them to be included for petroleum (or explain why you have concluded that they are zero). NRDC has not done that (substantively), to my knowledge. So what are these effects? We put up (commissioned) a preliminary analysis of petroleum, one of the few analyses of petroleum out there. It showed that even before getting into economic modeling - which is what produces indirect land use change for biofuels - there are significant effects. It finds that petroleum coke, for example, is a potential significant factor. For every 1000 barrels of crude refined, 90 barrels of extremely dirty coke goes to market as a by-product of refining. Much of this ends up outside of the refinery and the transportation sector. Petroleum coke combustion is the equivalent to 5% of all vehicle GHGs per year in the United States. You might call this an indirect effect of petroleum, or the avoidance of this effect (avoided coke combustion) an indirect benefit of biofuels. Either way, this is just one market impact worth looking at. Another is military. Two years ago I would have laughed at military inclusion. But indirect land use change completely changed the carbon assessment boundaries, putting military well within play. A recent published study (Liska et al.) concluded that military carbon emissions - assuming 26% of military activities in the Persian Gulf are for protecting oil resources - doubled the carbon score of Persian Gulf fuel. Perhaps the study has flaws, just like Searchinger’s first study of iLUC did, but that's a pretty big number. If you cut it in half it's a huge number. Either way, our petroleum study came to this basic conclusion: "Broader economic or price-induced petroleum effects are difficult to systematically assign a boundary given the prevalence of oil-induced economic drivers in the world economy. However, to the extent that economic effects are considered a part of the life cycle analysis of alternative fuels, as is the case with iLUC for biofuels, their effect vis-à-vis petroleum is also of interest." So let's get the economic modeling done so we can compare indirect effects to indirect effects, instead of isolating one indirect effect and adding it to the carbon score of one fuel, and offering without analysis that it is the only indirect carbon effect out there.

EXPANSION EFFECT OF ELECTRICITY
You say I am wrong about the expansion effect of electricity. I don't think so. Capping electricity emissions in California will not prevent an indirect (price induced) carbon effect occurring outside of the borders of California any more than capping agricultural land expansion in California would prevent theoretical land conversion overseas from increased demand for agricultural products for biofuels. Most of California's power comes from natural gas. Up to 30% of all electricity comes from outside state borders. If California or the country needs more natural gas to produce electricity because electricity is going into cars, or because NG is going into cars directly, the price of natural gas is going to go up. Power producers looking to produce the marginal electron (the electron now needed in the system to meet new demand) may be priced out of natural gas and choose coal. You say they cant because electricity is capped in CA. But the effect might occur in Nevada, or Pennsylvania, or Canada, or Mexico. It's all about asking what happens on the margins. That's the approach taken for indirect land use change, and it should be the approach taken for other fuels if parity was enforced and LCA boundaries were consistent. But the LCA boundaries have been allowed to be inconsistent, and the result is unneeded controversy and division.

“PUT UP OR SHUT UP”
You invited me to “put up or shut up” on petroleum. As discussed, we have commissioned a study that only scratches the surface for petroleum but nonetheless shows some significant effects. Others have bigger numbers for petroleum. But we cannot fund all the work that needs to be done, as much as we would like to, and even while we explore further research as we speak. Much of the heavy lifting on iLUC was underwritten by oil companies, so we may have to find a big donor to do in-depth work on petroleum indirect effects (assuming oil isn’t interested). But in the spirit of “put up or shut up”, let’s be honest about what an indirect effect is. An indirect effect is someone else’s direct effect, by definition. In other words, indirect land use change is the land converted to produce another product (e.g. food) somewhere else (ascribing causation to biofuels for theoretically pushing them there). Ok, let’s assume that this causal chain is reasonable; 2 truths emerge: (1) there is really only direct land use change on this planet (i.e. if a tree falls to produce food, you can blame biofuels but it still fell to produce food); and, (2) ascribing an indirect effect penalty to any product is a way to shift the direct carbon effect of Product A to Product B. How does that work in cap and trade? And is that good public policy?

IMPACTS OF DRIVING
This was just an illustrative example. The question is: should a Prius be debited for likely increasing the driving of the populace? Imagine how 50% penetration of all electric vehicles could make gas prices plummet and bring back the gas guzzling SUV. I do not know if the effect is large or small. Given the history of economic modeling, I bet one researcher could make the effect large, and another quite small. You seem to think it is our responsibility to present all the data -- we would if we could -- but who is making the policy and don't they have a legal obligation to be balanced? Either way, the point is this: an indirect effect is a questionable metric to judge a product by. It makes sense to assess it on the context of a specific policy (like the RFS) - but part of the biofuel carbon score? To do that, you have to hold the rest of agricultural production static and harmless for cumulative agricultural expansion. Talk about willful ignorance.

WILLFUL IGNORANCE
I guess one person’s precaution is another’s willful ignorance. Holding off on enforcing a single indirect effect until a better understanding of indirect effects across all fuel pathways (or at least oil and biofuels) can be achieved is not willful ignorance, it's being careful. The parity assessment does not have to be perpetual, but it has to happen. Even the modelers admit these models are in their infancy. We need not ask for certainty before we act, but blatant asymmetry is not the solution. Selective enforcement of indirect effects could produce unintended consequences, such as more marginal (carbon intensive) petroleum consumption in the near term.

I am sure the environmental community will blame "agriculture" for yesterday’s concessions on biofuels. But isn't selling economic modeling as precise enough to put people out of business and supporting selective LCA boundary expansion part of the reason for the backlash? I think so. To be clear, indirect effects should be part of any policy consideration (with emphasis on “policy”) but I also believe that the controversy today stems in part from a reasonable concern being misapplied.

Thanks for the response and I appreciate the invitation to reply.
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