California regulators tonight approved the world's first low-carbon fuel standard, a bold set of performance-based fuel rules that are being closely watched in more than a dozen other states and countries, as well as in Washington.
Many of the program's details are still in flux, to be worked out by the Air Resources Board before the standard takes effect in 2012.
The goal was clear, though: achieve a 10 percent reduction in the carbon intensity of transportation fuels by 2020. Fully implemented, California's LCFS is expected to cut those emissions by 15 million metric tons a year.
"The big picture is we want to incentivize the use of electricity for vehicles. ... We want to incentivize innovation," said Air Resources Board member Daniel Sperling.
The board's members envision biofuels created from municipal and agriculture waste along with low-carbon, non-food-stock fuels. Some of the anticipated innovations are in their infancy – jet fuel from algae and trucks powered by used cooking oil; others don't yet exist but could be inspired by the Obama administration's strong financial support for advanced fuel and energy development.
At today's daylong hearing ahead of the vote on the LCFS regulation, environmental groups, electric utilities, and developers of next generation biofuels applauded the plan.
Businesses, meanwhile, were worried about a bump in fuel costs – they noted that U.S. Energy Secretary Steven Chu said at a hearing on federal climate legislation yesterday in Washington that a low-carbon fuel standard would increase the price at the pump.
The LCFS's unique lifecycle grading system also brought out complaints of discrimination from corn-ethanol producers and Canadians worried that the standard might pinch their carbon-intensive tar sands.
With no examples to follow, the board built its LCFS program from scratch, designing it to be compatible with future cap-and-trade systems. The program doesn't pick favorite fuels. Instead, it's performance-based. It uses tradable credits earned when a fuel mix's carbon intensity, or amount of greenhouse gases released per unit of energy produced, remains below the standard. Fuels aren't just graded at the point of combustion, their carbon intensity score takes into account the entire lifecycle, cradle to grave.
Ethanol producers accused the board of targeting them by factoring into the lifecycles indirect costs, such as land-use changes, but doing so only for biofuels. The board's staff said it found that the majority of carbon emission from other fuels occur in their end use, whereas biofuels, such as corn-based ethanol, had higher indirect costs at production.
Retired Gen. Wesley Clark, a former presidential candidate who now chairs the ethanol industry group Growth Energy, shot back a rapid-fire lesson in the externalities of another fuel – petroleum: "It starts with 'There Will Be Blood' and ends with what we're seeing in Baghdad, where 75 people were killed today in a suicide bombing."
"This is too important to get wrong," Clark told the board.
Canada's Consul General suggested the California approach may amount to discrimination against Alberta's tar sands productions and warned that it could run afoul of international trade obligations. Michael Scheible, the Air Resources Board's deputy executive officer, responded to the tar sands question: "Make it as clean as conventional petroleum, and we'll look at it."
Between now and 2012, Scheible and the board's staff will be looking into all of those issues. The board requested formal reviews in January 2011 and January 2012 to check on the progress and consider lingering issues, such as the lifecycle assessments, how much to credit companies that innovate and invest in carbon-reduction activities, the future impact of the rule on state fuel supplies, questions of permits and infrastructure, and analyses of public health impacts.
While several speakers at the hearing urged the board to hold off on approving the standard until those details were more clear, board members saw a greater benefit in acting immediately. The final vote was 9-1.
"We're sending a strong signal to industry that there will be a change – now is the time to invest, now is the time to do the research. We are not going to go backwards; this is something that you can bank on," said board member Ken Yeager. "We can always tweak it, but we are headed in the right direction."
The low-carbon fuel standard stems from Gov. Arnold Schwarzenegger's long-term goal of reducing greenhouse gas emissions in California by 80 percent by 2050. The fuel standard is an important piece, but it will have to go farther to meet the governor's goals, and the board expects it eventually extend fuel targets to 2030 as well.
If California's program succeeds, it likely will be the inspiration for future low-carbon fuel standards around the world. Several Northeast states are already taking notes, board Chairwoman Mary Nichols said. On Friday, Washington will be listening, too. Sperling is scheduled as a transportation energy expert to testify at Congressional hearings on the Waxman-Markey climate bill.