Risks of crediting carbon offsets in low carbon fuel standards: lessons learned from dairy biomethane

Low Carbon Fuel Standard (LCFS) policies can reduce emissions from transportation by subsidizing fuels based on their carbon intensities, as determined through Life Cycle Assessment (LCA). However, when these LCAs include avoided emissions or carbon sequestration, they can create distortions in other markets with far-reaching implications. California’s recent experience with biogas fuels derived from animal agriculture offers an object lesson in the risks associated with this analytical and policy approach. Assuming that all biogas produced by anaerobic digestion of manure would otherwise have been emitted as uncontrolled methane, California’s LCFS has assigned negative carbon intensity (CI) “scores” to these pathways, spurring a rapid buildout of anaerobic digesters. However, this structure may distort the market for dairy and livestock products by creating a significant revenue stream available particularly to the largest operations and to those producing the most methane. In addition, it may distort other emissions markets by creating a class of de facto carbon offsets with a higher value but without the additionality requirements that apply to formal offset markets. This paper describes this growing problem in LCFS policies, identifies other markets in which it may emerge, and suggests structural changes that would avoid or minimize these distortions.