Cleantech Market Intelligence
Leading Again, California Pushes a Low Carbon Fuel Standard
Often at the forefront of progressive vehicle emissions and air quality policy development, California is once again leading the charge to push the federal government to adopt new vehicle efficiency standards. In mid-July, the UC-Davis Institute of Transportation Studies, along with five other leading research institutions, released a study proposing a national low carbon fuel standard (LCFS) to replace or revise the current national renewable fuel standard (RFS). Recently the RFS has come under heavy scrutiny from politicians from both parties, the environmental community, the auto industry, and the food industry, for the standard’s focus on ethanol.
The LCFS program originated in California and is modeled after the California Zero Emissions Vehicle (ZEV) program (see earlier post) whereby vehicle producers are mandated to produce certain amounts of ZEVs, or partial ZEVs, in order to avoid financial penalties. The ZEV program is governed by credits which are bestowed on vehicle suppliers for how many ZEVs they supply to the state. The credits can be traded between the suppliers and, therefore, can act as an additional small revenue stream for smaller vehicle suppliers like Tesla Motors. The ZEV program has run successfully now for some time and has helped advance fuel efficiency in vehicle technologies.
Observing the success of the program on vehicles, the California state legislature decided to look at the other piece of the equation: fuel. The first program was proposed in 2007, and by 2009 the California Air Resources Board (CARB) had begun implementation. In the LCFS scheme, instead of associating credits to fuel efficient or zero emissions vehicles, credits are awarded for the supply of alternative fuels like hydrogen, bio-diesel, electricity, natural gas, and certain types of ethanol, based on a calculation that measures the “seed to wheels” carbon intensity of each fuel. The less carbon intense the fuel and its pathway to consumption are, the more credit the supplier receives.
From the “seed to wheels” calculation emerged some less than beneficial market effects, e.g., the decreased demand for U.S. domestic ethanol consumption in favor of imported Brazilian sugarcane ethanol. Despite these objections, the LCFS has pushed development of biofuel refineries and alternative fuel infrastructure for hydrogen, natural gas, and electricity in California. It has also been adopted by British Columbia and the European Union, and is being seriously considered by Washington and Oregon.
The national RFS mandate has been mostly fulfilled by corn-based ethanol. It also has mandates for other non-bio alternative fuels, but many argue that it does little for hydrogen, natural gas, electricity, and other alternative fuel development. This fact seems rather out of place when so much interest from both public and private sectors is moving to the non-ethanol fuels. National LCFS promoters hope future congressional debates will focus on bipartisan pieces of the policy, like its agnostic approach to technology. However, in this congress, hope for bipartisanship is a tall order.