BILL ANALYSIS Ó
AB 278
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Jerry Hill, Chair
2013-2014 Regular Session
BILL NO: AB 278
AUTHOR: Gatto
AMENDED: June 17, 2013
FISCAL: Yes HEARING DATE: July 3, 2013
URGENCY: No CONSULTANT: Rebecca
Newhouse
SUBJECT : LOW CARBON FUEL STANDARD
SUMMARY :
Existing law , under the California Global Warming Solutions Act
of 2006 (Health and Safety Code §38500 et seq.):
1) Requires the California Air Resources Board (ARB) to
determine the 1990 statewide greenhouse gas (GHG) emissions
level and approve a statewide GHG emissions limit that is
equivalent to that level, to be achieved by 2020, and to
adopt GHG emission reduction measures by regulation, and sets
certain requirements in adopting the regulations.
2) Authorizes the ARB to include the use of market-based
compliance mechanisms in the regulations.
3) Requires that before the inclusion of any market-based
compliance mechanism, that the ARB do all the following:
a) Consider the potential for direct, indirect, and
cumulative emission impacts from these mechanisms,
including localized impacts in communities that are
already adversely impacted by air pollution.
b) Design any market-based compliance mechanism to prevent
any increase in the emissions of toxic air contaminants or
criteria air pollutants.
c) Maximize additional environmental and economic benefits
for California, as appropriate.
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This bill :
1) Requires the ARB, when promulgating regulations or other
policies on the carbon intensity of fuels, to consider the
following:
a) The full life-cycle carbon emissions from the
production of a fuel.
b) The effect of a fuel source on the global food supply
including, but not limited to, crop displacement, food
prices, food shipping, and market conditions.
c) The direct and indirect land use changes resulting
from food production.
d) The state of the fuel market and technologies.
2) Requires ARB to include mechanisms and policies that favor
fuels with the lowest possible negative effect on the food
supply sustainability factors listed above and give
preference to fuels produced without food stock or
displacement of food crops.
COMMENTS :
1) Purpose of Bill . According to the author, "Under the
current executive order (S-01-07 Schwarzenegger, 2007),
CARB is tasked to look solely at the carbon intensity of
California's transportation fuels. This bill allows CARB
to also take into consideration the impacts fuels have on
food production, as well as the overall sustainability of
the fuel. Additionally, CARB is currently updating its
Indirect Land Use Change (ILUC) calculation, an algorithm
used to estimate the indirect carbon emissions generated by
producing fossil fuels or alternative fuels. Several
articles have challenged CARB to take into consideration
several additional sources of indirect emissions, including
changes in global food shipping caused by the production of
a fuel. This bill requires CARB to include these
additional factors in their ILUC calculation. Lastly,
according to the Davis Institute of Transportation Studies,
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the LCFS generated 78% of its credits from ethanol in 2012.
The state should be incentivizing more sustainable
alternative fuels which do not displace food crops, like
waste-based fuels, cellulosic ethanol, electrification and
efficiency. This bill requires CARB to take proactive
steps to incentivize non-food based compliance mechanisms,
and requires CARB to give preference to non-food based
fuels."
2) Carbon intensity . Carbon intensity (CI) is a measure of
the direct and indirect GHG emissions associated with each
of the steps in the full life-cycle of a transportation
fuel (also referred to as the "well-to-wheels" for fossil
fuels, or "seed or field-to-wheels" for biofuels). The
overall GHG contribution from each particular step in the
production and delivery process is a function of the energy
that step requires. Thus, if a fuel that requires little
energy to create, and produces low carbon emissions when
consumed, has to be transported significant distances for
use, it may still have a high life-cycle CI because of the
high energy requirements of transport.
For each fuel pathway, the LCFS requires the analysis of
both direct effects and indirect effects when determining
the CI of the fuel:
Direct effects: Direct effects take into account farming
practices (e.g., frequency and type of fertilizer used),
crop yields, harvesting practices, transportation of the
feedstock, the type of fuel production process used, its
efficiency and fuel use, the value of co-products
generated, and the transport and distribution of the fuel.
Biofuels that are energy-intensive to produce and
distribute will have higher CI values and be of less value
when complying with the LCFS standards.
Indirect effects: An indirect effect that generates
significant quantities of GHGs is land use change. A land
use change effect is initially triggered by a significant
increase in the demand for a crop-based biofuel. For
example, when farmland devoted to food and feed production
is diverted to the production of that biofuel crop,
supplies of the displaced food and feed crops are reduced.
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Supply reductions cause prices to rise, which, in turn,
stimulates increased production. If that production takes
place on land formerly in non-agricultural uses, a
land-use-change impact results. The specific impact
consists of the carbon released into the atmosphere from
the lost cover vegetation and disturbed soils in the
periods following the land use conversion.
These effects that are currently factored into the LCFS
program result in ethanol produced from food having a
significantly higher CI value than biofuels produced from
waste products or other types of fuels that are not crop or
fossil fuel based.
ARB estimates the land use change effects of biofuel crop
production using the Global Trade Analysis Project (GTAP),
which is a computer model developed and supported by
researchers at Purdue University. Within the GTAP's scope
are 111 world regions, some of which consist of single
countries, others of which are comprised of multiple
neighboring countries. Each region contains data tables
that describe every national economy in that region, as
well as all significant intra- and inter-regional trade
relationships. The data for this model is contributed and
maintained by more than 6,000 local experts.
3) LCFS . In January 2007, Governor Schwarzenegger issued
Executive Order S-01-07 in which he ordered the
establishment of a statewide goal of reducing the CI of
California's transportation fuels by at least 10% by 2020
and ordered ARB to establish a low-carbon fuel standard
(LCFS) for the state. ARB adopted the LCFS regulation in
April 2009, and it took full effect a year later. In May
2009, ARB adopted its AB 32 Scoping Plan to map out how to
achieve the reduction in GHG emissions by 2020, as required
by AB 32. The Scoping Plan included the LCFS as an early
action and projected the program to result in 15 million
metric tons (MMT) of emissions reductions, or about 20% of
the GHG emissions reductions needed to reach the 2020 GHG
emissions target of 427 MMT.
ARB staff designed the LCFS to reduce GHG emissions by
reducing the CI of transportation fuels used in California
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by an average of 10% by the year 2020. The LCFS achieves a
10% reduction in average CI by establishing an initial
intensity level for specified providers of transportation
fuels ("regulated parties") and incrementally lowering the
allowable CI in each subsequent year. For example, modest
targeted reductions of 0.5 and 1.0% are required for 2012
and 2013, respectively. The reductions become more
substantial with each year, such that by 2020, the 10%
average reduction is achieved. This reduction makes room
for low-CI fuels to enter the market. A regulated party
needs to meet each year's specified target, taking into
account all of its transportation fuels. If the reduction
in intensity exceeds the target, the provider earns a
credit, which can be sold or carried forward. The LCFS
allows fuels like electricity, hydrogen, and natural gas,
which already meet the CI standards through 2020, to
generate LCFS credits that may be sold. Regulated fuel
providers, therefore, can meet their annual CI levels
through several compliance strategies: making low-GHG
fuels, such as biofuels made from waste products; carrying
forward credits from previous years from their own
production process; buying credits from other fuel
producers; or reducing the amount of fuel they sell.
A fuel provider meets the requirements of the LCFS if the
amount of credits at the end of the year is equal to, or
greater than, the deficits. A provider determines its
credits and deficits based on the amount of fuel sold, the
CI of the fuel, and the efficiency by which a vehicle
converts the fuel into useable energy. Under the LCFS, a
regulated party's compliance with the annual CI
requirements is based on end-of-year credit/deficit
balancing.
4) LCFS lawsuits . In 2009 and 2010, three lawsuits were filed
against the LCFS by ethanol interests: two in federal court
and one in state court. The federal lawsuits were brought
by trade associations of ethanol producers and refiners who
claim that the LCFS is preempted under the Energy
Independence and Security Act of 2007 and violates the
Commerce Clause of the U.S. Constitution (e.g., by
assigning corn ethanol from the Midwest a CI value above
that of corn ethanol made in California). Plaintiffs claim
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that corn ethanol will eventually be excluded from the
California market in favor of more advanced biofuels that
have a lower CI value. ARB contends that many corn ethanol
producers from the Midwest have in fact registered with ARB
with CI values that are well below gasoline and, indeed,
even less than California corn ethanol. Plaintiffs also
claim that California is impermissibly regulating
interstate commerce beyond its borders by regulating
aspects of a fuel's lifecycle that occur outside of the
state's borders. The combined federal lawsuit (Rocky
Mountain Farmers Union v. Goldstene) is before the Ninth
Circuit Court of Appeals, which is considering ARB's appeal
of several adverse rulings and a preliminary injunction
that were issued by the lower federal court in Fresno in
December 2011. In April 2012, the Ninth Circuit granted
ARB's request for a stay of the preliminary injunction,
which allowed ARB to resume enforcement of the LCFS during
the pendency of the lawsuit. On October 16, 2012, the
Ninth Circuit considered oral arguments from the parties.
A ruling from the Ninth Circuit is expected sometime this
year.
5) Federal Fuel Standard . Enacted in 2005 as part of the
Energy Policy Act, the Renewable Fuel Standard (RFS) is the
nation's primary renewable fuel policy. It requires
conventional fuel refiners to meet annual targets for
renewable fuels. The RFS was amended in 2007 to require 36
billion gallons of biofuel to be used throughout the
nation's transportation fuel supply by 2022 (RFS2). The
RFS2 sets different volume requirements for different
classes of biofuel: conventional, advanced, and cellulosic.
In addition, under RFS2, each type of biofuel must also
achieve specific greenhouse gas reductions relative to
conventional fuels Conventional ethanol (such as corn
ethanol) from new facilities must be 20% better than
conventional petroleum fuel on a greenhouse gas basis,
although much ethanol was grandfathered in and exempted
from meeting this requirement. Advanced biofuel must
achieve a 50% reduction relative to petroleum while
cellulosic biofuel must achieve a 60% greenhouse gas
reduction.
Federal vs. State fuel standard . The federal and state
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fuel policies are substantially different. The RFS2
mandates the use of biofuels. Because of this type of
mandate, Federal and international biofuel policies have
been implicated in numerous articles as potential
contributors to deforestation and food shortages, since
crops are diverted for fuel purposes, and other land is
adapted to accommodate additional crops for consumption.
Unlike the RFS, the LCFS includes all transportation fuels,
including electricity, natural gas, and hydrogen as well as
biofuels. Second, it is a performance standard, requiring
reduction of a fuel's CI over a certain period of time,
instead of mandating the use of a specific type of fuel.
Because of this performance standard, the LCFS is
considered to be much more effective policy at stimulating
innovation since fuel suppliers are rewarded for reducing
carbon emissions at every step in the energy supply chain
from cultivation and extraction to fuel processing,
transport, and distribution, unlike under RFS2.
On July 19, 2012, the multi-institutional National LCFS
Project (a collaboration of researchers from UC Davis, Oak
Ridge National Laboratory, Carnegie Mellon University and
others) released the national LCFS study that recommended
replacing or enhancing the RFS with a national LCFS. The
study found that, when compared to the RFS2 policy alone, a
national LCFS combined with the RFS2 could significantly
reduce the magnitude of the resulting global cropland
expansion, and environmental and social impacts associated
with that expansion. By focusing on the lifecycle GHG
performance of fuels, an LCFS policy provides incentives
for feedstocks that do not require additional land, such as
waste and agricultural residues, or feedstocks that require
less cropland than food based crops, such as algae.
6) Fuel Sustainability . The broader issue of sustainability
can be divided into categories of environmental, social,
and economic sustainability.
Environmental sustainability ensures that the production
and delivery of alternative fuels do not harm natural
resources, such as land, water, and air. For liquid
biofuels, sustainability includes the cultivation,
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collection, and processing of feedstocks, as well as the
distribution and consumption of the biofuels themselves.
Land impacts include those affecting soil quality, soil
erosion, and loss of biodiversity; water impacts take into
account water quality and availability; and air impacts can
include increased emissions of criteria pollutants (such as
nitrogen oxides and particulate matter), toxic air
pollutants, and GHGs. The Board-approved LCFS regulation
contains provisions that already address some of these
environmental sustainability issues. By its very design,
the LCFS will result in a net reduction of greenhouse gases
by taking into account the full lifecycle GHG emissions of
alternative transportation fuels.
Social sustainability, according to the ARB, includes the
consideration of labor rights, income distribution, working
conditions, the land rights of indigenous people,
environmental justice, as well as food prices and food
security.
Economic sustainability includes food prices and food
security, as well the issue of creating an economic
environment where alternative fuels can be produced and
distributed on a long-term basis.
Consideration of food prices and supply is an important
sustainability component of any fuels program, however,
solely codifying provisions relating to food sustainability
without integrating these provisions as part of a broader
sustainability policy goal appears to prioritize factors
relating to food supply above other, equally valid
environmental, economic, and social sustainability
concerns.
7) LCFS update underway . Some of the matters that this bill
raises appear to be already addressed as aspects of the
design of LCFS. However, ARB staff is working with
stakeholders to further refine methodology to account for
potential impacts of price effects and related reductions
in food consumption from the diversion of food crops to
produce biofuels.
The ARB directed staff, through Resolution 09-31, to
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convene an expert work group to develop sustainability
provisions to be used in implementing the LCFS regulation.
The expert work group has hosted a series of meeting on the
issue, including the last meeting on May 16, 2013, to
discuss sustainability concerns, and appropriate
verification and accreditation to improve the scoring of
factors related to sustainability in their carbon
life-cycle analyses for fuel pathways. The next
sustainability workshops are proposed for July 9, 25, and
27. These workshops are part of an effort to discern what
matters, including revisions to indirect land use change
values of CI for crop-based biofuels (in terms of
agricultural yield improvements, co-product credits, land
emission factors, food price elasticity and other relevant
factors), should be included in an update to the regulation
that staff plans to present to the board in the fall with
approval before the end of the year.
8) Arguments in support . The Milk Producers Council (MPC)
states that California's dairy families produce about 20
percent of the nation's milk and in order to do that, they
need a reliable supply of hay and grains in order to feed
their cows. The MPC notes that in recent years, that
reliable supply has been severely threatened, as our energy
policies, particularly those enacted by the U.S. Congress,
have resulted in more than 40% of the nation's corn supply
being used to produce ethanol rather than be available for
food or animal feed purposes.
9) Arguments in opposition . The American Lung Association and
the Natural Resources Defense Council are concerned that
the bill calls for analyses that are already underway at
ARB, does not reflect the benefits of the LCFS and the need
for California to move strongly in the direction of
reducing carbon content of fuels, and focuses on the issue
of "food supply sustainability" rather than sustainability
more generally. Both of these organizations note the
importance and benefit of the LCFS as a key tool to fight
both air pollution and climate change problems, expressing
concern that the bill may weaken the LCFS, which they
believe is already structured to favor fuels that do not
compete with food production.
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10)Suggested amendments .
a) Because the bill requires ARB to consider food supply
sustainability, as well as other sustainability issues,
the committee may wish to strike the words "food supply"
from page 2, line 6 of the bill, so as to require the
ARB to consider the sustainability factors listed in the
bill.
b) To add clarity and give the board the authority to
score impacts of fuels on the global food supply, the
committee may wish to suggest that the ARB be required
to consider the positive or negative effects of fuel
source on the global fuel supply, as determined by the
ARB.
c) The bill requires ARB to consider direct and indirect
land use changes resulting from food production. To add
clarity that the ARB should only be required to consider
land use changes from food production associated with
the production of fuels, the committee may wish to
suggest the ARB be required to consider the direct and
indirect land use changes resulting from fuel
production.
d) In order to better integrate food supply
sustainability factors listed in the bill with the
current design and goals of the LCFS program, and
current efforts towards more comprehensive
sustainability goals, the committee may wish to suggest
the following:
i) Instead of requiring the ARB to include
mechanisms and policies that favor the lowest
possible negative effect on the food supply
sustainability factors, that the ARB be required to
include mechanisms and policies that favor
low-carbon fuels with the highest possible
sustainability based on the considerations
currently listed in the bill.
ii) The committee may wish to suggest that instead
of requiring ARB to give preference to fuels
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produced without food stock or displacement of food
crops, that the ARB be required to incentivize
sustainable fuels produced without food stock or
displacement of food crops.
SOURCE : Author
SUPPORT : Milk Producers Council
OPPOSITION : Advanced Ethanol Council
American Lung Association
National Biodiesel Board
Natural Resources Defense Council