More States Follow California’s Lead with Low Carbon Fuel Standard Programs

May 9, 2019

California is well known for its leadership on protecting the environment and the state’s status as a trailblazer has stimulated both innovation and imitation. California was one of the first states to develop a comprehensive air quality improvement plan, establish a state agency dedicated to promoting energy conservation, and the first state to create a commission whose sole purpose is to protect the coast from overdevelopment.

It comes as no surprise then that California also leads in the development and implementation of policies to reduce its emissions of greenhouse gases (GHGs) and other states have since followed. Greenhouse gases are the compounds that trap heat in the atmosphere, causing a steady increase in the temperature of the planet and a shift in climate patterns that have been the norm since the last ice age.

Overall, California has been fairly successful in reducing its climate footprint. With the passage of AB 32 in 2006, the Golden State established a goal of reducing its GHG emissions (measured in units known as carbon dioxide equivalents, or CO2e) by 20% below 1990 levels by 2020. When California achieved this goal several years early, policymakers created an even more ambitious goal of reducing GHG emissions by 40% below 1990 levels by 2020.

Low Carbon Fuel Standard Requirements

To meet these ambitious reduction goals, California developed a number of different policies and programs to help the state become more energy efficient and decrease its consumption of carbon-rich fossil fuels. Since the plurality of California’s GHG emissions come from the transportation sector, one of the most important programs created in Sacramento to reduce GHG emissions continues to be the Low Carbon Fuel Standard (LCFS).

The LCFS has many elements, but at its core is a requirement that fuel providers, companies producing and selling vehicle fuel, reduce the carbon content of the transportation fuels they sell in California. This requirement pertains not only to the combustion of the fuel itself, but to its entire life cycle. This methodology accounts for all of the GHGs produced throughout the production, refining, transportation, and end use of the fuel. Known as “from well-to-wheels” this approach aggregates all of the energy used to bring a fuel to, and through, its use by customers.

At its core, the LCFS requires that fuel providers, companies producing and selling vehicle fuel, reduce the carbon content of the transportation fuels they sell in California.

A New Reduction Target

Initially, companies obligated to meet the carbon reduction requirement (so called “obligated parties”) were required to reduce the carbon content of the fuel they sell in California by 10% by 2020. Similar to California’s overall GHG reduction target, on January 1, 2019 the LCFS was modified, setting a new 2030 target for obligated parties of a 20% reduction in the carbon content of the fuel they sell in California.

How Fuel Providers Can Meet Reduction Targets

Much like several of California’s environmental programs, the LCFS provides obligated parties with a variety of ways to meet their carbon reduction targets. They can, of course, modify the way they refine fuel so as to make it less energy intensive. They can blend lower carbon fuels, such as ethanol or biodiesel, with their conventional gasoline and diesel which reduces the carbon footprint of the end product. Finally, they can purchase credits from other transportation fuel producers who have exceeded their obligation and have produced surplus carbon reductions. For the most part, fuel providers have found it easier and more cost effective to purchase LCFS credits than to fundamentally alter their refineries.

A Solution to a Grand Challenge

This last compliance option, to purchase credits, is very important, as it creates an incentive for the production of low, zero, and negative carbon fuels. These include gases such as methane and hydrogen from renewable feedstocks, like municipal wastewater, green waste, food waste, and dairy manure. The value of this incentive cannot be understated—by creating a demand for low, zero, and negative carbon fuels, the LCFS creates a powerful incentive for the recovery, recycling, and reuse of society’s waste products. For generations, this has been one of humanity’s most pressing and intractable challenges. By demanding that the transportation sector reduce its carbon content, the LCFS is turning sewage, animal waste, and garbage into commodities that are too valuable to throw away!

This last compliance option, to purchase LCFS  credits, is very important, as it creates an incentive for the production of low, zero, and negative carbon fuels.

California Leading the Way as More Follow

The LCFS program has made a tremendous impression on other communities attempting to reduce their carbon footprint. As of this writing, there are several states that have already adopted, or are considering adoption of, LCFS-like programs. In addition, several Canadian provinces have also established, or are considering, clean fuel programs. In fact, Canada’s federal government is currently working to develop a nation-wide clean fuel program, one that, in an ideal world, should be linked to the California LCFS to enable credit trading between the two.

Oregon’s Clean Fuel Program

One of the first states to develop and implement an LCFS-like program was Oregon. The Oregonian effort, called the Clean Fuels Program, was created in 2009 when the legislature passed HB 2186, which authorized the Oregon Environmental Quality Commission to adopt regulations to reduce the carbon intensity of transportation fuels by 10% over a ten year period. The program did not go into effect until after the legislature passed SB 324 in 2015. Once the program started in 2016, it provides for specific targets for the average carbon intensity of both gasoline and diesel each year through 2025. Regulated parties, those fuel providers that import gasoline, diesel, ethanol and biodiesel into Oregon, must meet the annual target for each fuel’s carbon intensity or purchase credits from registered parties to meet their carbon intensity obligation.

British Columbia’s Clean Fuel Program

British Columbia also has a Clean Fuels Program, which was established in 2010. The program has several parts, including a requirement that all gasoline and diesel sold in the province have renewable fuel content. Similar to the first phase of California’s LCFS, the carbon intensity of all transportation fuel sold in BC must decrease by 10% over 2010 levels by 2020. Just as with the California program, BC fuel suppliers also have options as to how to meet their carbon reduction requirements, including trading credits with other fuel suppliers or acquiring credits from the market.

Similar to the first phase of California’s LCFS, the carbon intensity of all transportation fuel sold in British Columbia must decrease by 10% over 2010 levels by 2020.

Washington State’s Pending Legislature

Although House Bill 1110 passed the Washington State House in March, it did not make it out of the State Senate Committee on Transportation in time to become a part of the sweeping climate protection package that Governor Jay Inslee signed in to law on May 7th. Senators on the committee were concerned over the impact that a low-carbon fuel standard would have on fuel prices in the state and the impact that higher prices might have on low- and moderate-income families. HB 1110, introduced by Democratic Rep. Joe Fitzgibbon and supported by Governor Inslee, would have created a program that targets the reduction of greenhouse gas emissions from transportation fuels by 10% below 2017 levels by 2028 and 20% below 2017 levels by 2035. The bill (and its companion in the Senate, SB 5412) would have established a start date for the low-carbon fuel standard of January 1, 2021. The bill, which had 14 sponsors in both the House and the Senate, was championed by the Renewable Natural Gas Coalition (RNGC). The authors have committed to reintroducing the bill in 2020.

New York’s Low Carbon Fuel Program

Following the example of California and other West Coast states and provinces, more and more states across the nation are considering the development of their own low carbon fuel programs. One of the most recent advances is in the state of New York. On February 8th, also with the help of the RNGC, Assemblywoman Carrie Woerner (D – Saratoga Springs) introduced Assembly Bill 5262, which would establish a low carbon fuel standard in New York. The new LCFS for New York is intended to reduce the greenhouse gas emissions from the transportation sector by 20% by 2030. As of this writing, the bill is still pending in the Assembly Environmental Conservation Committee. Should the bill pass the legislature and be signed into law, the State’s Department of Environmental Conservation will be required to develop the regulations and enforcement mechanisms needed to implement the LCFS.

The Next Region to Consider a Low Carbon Fuel Program

Even some of the states in the farm belt are exploring developing their own low carbon fuel program. “Believe it or not,” said Renewable Fuels Association President and CEO Geoff Cooper at the National Ethanol Conference in Orlando on February 12th, “there are conversations starting in the Midwest about a low carbon fuel program similar in nature to what we see on the West Coast.[1]” Under the coordination of the Great Plains Institute, Minnesota, Iowa and South Dakota are some of the states believed to be considering participation in a low carbon fuel program that will be tailored for the needs of Midwestern states.

Canada’s Ambitious Plan

Although states have been the incubators for the clean fuel program revolution, countries are also evaluating the mechanism to lower the carbon footprint of their transportation systems by compelling fuel providers to lower the carbon content of the fuels they sell to motor vehicle operators. Most notable is what is being developed by Canada. The Clean Fuel Standard program that is being developed by Environment and Climate Change Canada (ECCC, Canada’s federal equivalent of USEPA) seeks 30 million metric tonnes of carbon reductions from the county’s energy economy by 2030, and will actually cover liquid, gaseous and solid fuels used throughout society. The draft regulations governing carbon reduction in liquid fuels, however, is scheduled to be published this Spring 2019, be finalized in 2020, and be enforced beginning in 2022. The “design paper” for the Clean Fuel Standard was released by ECCC, on December 18, 2018, and it included concepts for obligated parties to be able to meet their compliance requirements by reducing the carbon content of fossil transportation fuels, securing credits from the purchase and use of low carbon alternative fuels in Canada, and by “fuel switching” (converting conventional fuel consumers to a lower carbon fuel, such as natural gas, hydrogen or electricity).

The development of all of these new low carbon fuel programs is essential if we are to find cost effective ways to transition our transportation system away from carbon-intense fossil fuels.

The Common Denominator

The development of all of these new low carbon fuel programs is essential if we are to find cost effective ways to transition our transportation system away from carbon-intense fossil fuels. In order for the programs to actually substitute low carbon fuels for gasoline and diesel, there must be motor vehicles to consume the low carbon fuels. Whether these are EVs, NGVs, or FCEVs, society must encourage increased purchase of clean vehicles that are fueled by low carbon fuels.  If alternative fuel or electric vehicles are not available to purchase and use the fuel, then credits cannot be generated. Thus, in order to ensure the success of low carbon fuel programs, more needs to be done to help consumers, whether they are individual owners or fleet operators, buy the vehicles that are fueled by low carbon fuels. No matter which alternative fuel one favors, the common denominator is that the number of vehicles that can consume climate-friendly fuels must grow.

[1] Jordan Goodwin, Oil Price Information Service, “Groups Exploring Potential Midwest LCFS Collaborative”, 2019-02-12 05:38:17 EST