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A Low-Carbon Fuel Standard for California, Part 2: Policy Analysis

Author

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  • Farrell, Alexander
  • Sperling, Daniel

Abstract

The Low Carbon Fuel Standard (LCFS) can play a major role in reducing greenhouse gas emissions and stimulating improvements in transportation fuel technologies so that California can meet its climate policy goals. In Part 1 of this study we evaluated the technical feasibility of achieving a 10 percent reduction in the carbon intensity (measured in gCO2e/MJ) of transportation fuels in California by 2020. We identified six scenarios based on a variety of different technologies that could meet or exceed this goal, and concluded that the goal was ambitious but attainable. In Part 2, we examine many of the specific policy issues needed to achieve this ambitious target. Our recommendations are based on the best information we were able to gather in the time available, including consultation with many different takeholders. The recommendations are intended to assist the California Air Resources Board, Energy Commission, and Public Utility Commission, as well as private organizations and individuals, in addressing the many complex issues involved in designing a low carbon fuel standard. Choices about specific policies and calculation of numeric values for use in regulation must, of course, be made by these regulatory agencies. The analysis we present here is only illustrative. The need to significantly reduce greenhouse gas (GHG) emissions from the transportation sector opens up the possibility that new fuels and new vehicles may become economical and widely used. The introduction of new transportation fuels that do not require petroleum will have a co-benefit: reduced oil imports to the state and the nation. It is important to note that these new fuels will compete on a very uneven playing field: the size, organization, and regulation of these industries are radically different. It is unreasonable to think that these differences will be eliminated by the LCFS. The LCFS should be designed to reduce the barriers and disincentives facing energy companies that might offer low carbon fuels to consumers. Technological innovation is crucial to the success of the LCFS and to the achievement of California’s climate change goals. At the same time, imposing a new regulatory requirement will cause markets to shift (or rationalize) their existing production and sales so that improvements appear on paper to have been made, when in reality no significant change has occurred. Obviously, this rationalization does not represent the type of innovation needed to support the state’s climate change goals. Implementation of the LCFS must recognize and manage both of these effects, rewarding innovation while also minimizing unproductive “rationalization.†For this reason, we suggest that the LCFS require modest reductions in carbon intensity in the early years, and steeper reductions later as innovations and new investments bring more low carbon transportation fuels to market. The LCFS should not be seen as a singular policy. It can provide complementary incentives to an economy-wide GHG emission cap, should the state choose to impose one. Implementing the LCFS requirement with a provision for trading and banking of credits will tend to keep costs low. And the LCFS should also be coordinated with other climate change policies. In addition, the LCFS may have implications for broader issues, such as environmental justice and sustainability, and should be implemented with these issues in mind. Considerable increases in the administrative capability of the regulating agencies will be needed in order to successfully implement the LCFS, and this capability should be assisted by continued research support. One of the most challenging issues in the implementation of the LCFS is the climatic effect of land use change due to expansion of biofuel production. Because food and energy markets are global, all agricultural production contributes to the pressure to clear new land for crops. Recent scientific investigations suggest that enormous amounts of greenhouse gases can be released when lands are converted to more intensive cultivation (and also cause other adverse effects such as reduced biodiversity and changed water flows). These land use effects have been largely ignored in earlier lifecycle greenhouse gas assessments of biofuels. If biofuels are to reduce greenhouse gas emissions relative to fossil-based gasoline and diesel, then biofuels must: i) use advanced production methods (some of which are available now), ii) be derived from feedstocks grown on degraded land, or iii) be produced from wastes or residues. Land use change effects should be included in the LCFS, though cautiously at first, with the understanding that further research may change our understanding of this issue and therefore how it should be regulated. The LCFS provides a durable framework for reducing the large amount of greenhouse gases, especially CO2, that are emitted from today’s petroleum-based transport fuel system. It will facilitate the introduction of low-carbon fuels and restrain the trend toward investments in more carbon intense transport fuels. These unconventional resources, including heavy oil, tar sands, oil shale and coal, have higher, sometimes much higher, carbon emissions than fuels made from conventional petroleum. The LCFS is a response to this recarbonization of transportation fuels, as well as the many market failures blocking innovation and investments in low-carbon alternatives to petroleum.

Suggested Citation

  • Farrell, Alexander & Sperling, Daniel, 2007. "A Low-Carbon Fuel Standard for California, Part 2: Policy Analysis," Institute of Transportation Studies, Working Paper Series qt8xv635dc, Institute of Transportation Studies, UC Davis.
  • Handle: RePEc:cdl:itsdav:qt8xv635dc
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    Cited by:

    1. Hester, Annette & Lawrence, Leah, 2010. "A sub-national public-private strategic alliance for innovation and export development: the case of the Canadian province of Alberta's oil sands," Documentos de Proyectos 292, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Wang, Guihua, 2008. "Lifecycle Analysis of Air Quality Impacts of Hydrogen and Gasoline Transportation Fuel Pathways," Institute of Transportation Studies, Working Paper Series qt41x6t130, Institute of Transportation Studies, UC Davis.
    3. Holland, Stephen P., 2012. "Emissions taxes versus intensity standards: Second-best environmental policies with incomplete regulation," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 375-387.
    4. Leighty, Wayne & Ogden, Joan M. & Yang, Christopher, 2012. "Modeling transitions in the California light-duty vehicles sector to achieve deep reductions in transportation greenhouse gas emissions," Energy Policy, Elsevier, vol. 44(C), pages 52-67.
    5. Dallas Burtraw, 2008. "Regulating CO 2 in electricity markets: sources or consumers?," Climate Policy, Taylor & Francis Journals, vol. 8(6), pages 588-606, November.
    6. repec:kap:enreec:v:67:y:2017:i:4:d:10.1007_s10640-016-0006-6 is not listed on IDEAS
    7. repec:eee:eecrev:v:99:y:2017:i:c:p:191-215 is not listed on IDEAS
    8. Stepp, Matthew D. & Winebrake, James J. & Hawker, J. Scott & Skerlos, Steven J., 2009. "Greenhouse gas mitigation policies and the transportation sector: The role of feedback effects on policy effectiveness," Energy Policy, Elsevier, vol. 37(7), pages 2774-2787, July.
    9. Parker, Nathan C & Ogden, Joan & Fan, Yueyue, 2009. "The role of biomass in California's hydrogen economy," Institute of Transportation Studies, Working Paper Series qt8412751s, Institute of Transportation Studies, UC Davis.
    10. repec:spr:nathaz:v:89:y:2017:i:2:d:10.1007_s11069-017-2981-5 is not listed on IDEAS
    11. Yeh, Sonia & Sperling, Daniel, 2010. "Low carbon fuel standards: Implementation scenarios and challenges," Energy Policy, Elsevier, vol. 38(11), pages 6955-6965, November.
    12. Parker, Nathan C. & Ogden, Joan M. & Fan, Yueyue, 2008. "The role of biomass in California's hydrogen economy," Energy Policy, Elsevier, vol. 36(10), pages 3925-3939, October.
    13. Kammen, Daniel M. & Farrell, Alexander E & Plevin, Richard J & Jones, Andrew & Nemet, Gregory F & Delucchi, Mark, 2008. "Energy and Greenhouse Gas Impacts of Biofuels: A Framework for Analysis," Institute of Transportation Studies, Working Paper Series qt5qw5g6q2, Institute of Transportation Studies, UC Davis.
    14. Rubin, Jonathan & Leiby, Paul N., 2013. "Tradable credits system design and cost savings for a national low carbon fuel standard for road transport," Energy Policy, Elsevier, vol. 56(C), pages 16-28.
    15. Sperling, Daniel & Cannon, James S., 2010. "Climate and Transportation Solutions: Findings from the 2009 Asilomar Conference on Transportation and Energy Policy," Institute of Transportation Studies, Working Paper Series qt8wm1z34p, Institute of Transportation Studies, UC Davis.
    16. Rode, Philipp & Floater, Graham & Thomopoulos, Nikolas & Docherty, James & Schwinger, Peter & Mahendra, Anjali & Fang, Wanli, 2014. "Accessibility in cities: transport and urban form," LSE Research Online Documents on Economics 60477, London School of Economics and Political Science, LSE Library.
    17. repec:gam:jeners:v:10:y:2017:i:8:p:1089-:d:105940 is not listed on IDEAS
    18. Yeh, Sonia & Lutsey, Nicholas P. & Parker, Nathan C., 2009. "Assessment of Technologies for Compliance with the Low Carbon Fuel Standard," Institute of Transportation Studies, Working Paper Series qt5bg831jc, Institute of Transportation Studies, UC Davis.
    19. Rhodes, Ekaterina & Axsen, Jonn & Jaccard, Mark, 2015. "Gauging citizen support for a low carbon fuel standard," Energy Policy, Elsevier, vol. 79(C), pages 104-114.
    20. Rocio A., Diaz-Chavez, 2011. "Assessing biofuels: Aiming for sustainable development or complying with the market?," Energy Policy, Elsevier, vol. 39(10), pages 5763-5769, October.
    21. Meredith Fowlie & Christopher R. Knittel & Catherine Wolfram, 2008. "Sacred Cars? Optimal Regulation of Stationary and Non-stationary Pollution Sources," NBER Working Papers 14504, National Bureau of Economic Research, Inc.
    22. Santos, Georgina & Behrendt, Hannah & Maconi, Laura & Shirvani, Tara & Teytelboym, Alexander, 2010. "Part I: Externalities and economic policies in road transport," Research in Transportation Economics, Elsevier, vol. 28(1), pages 2-45.
    23. Axsen, Jonn & Kurani, Kenneth S. & McCarthy, Ryan & Yang, Christopher, 2011. "Plug-in hybrid vehicle GHG impacts in California: Integrating consumer-informed recharge profiles with an electricity-dispatch model," Energy Policy, Elsevier, vol. 39(3), pages 1617-1629, March.
    24. Derek Lemoine, 2017. "Escape from Third-Best: Rating Emissions for Intensity Standards," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 789-821, August.
    25. Yeh, Sonia & Witcover, Julie & Lade, Gabriel E. & Sperling, Daniel, 2016. "A review of low carbon fuel policies: Principles, program status and future directions," Energy Policy, Elsevier, vol. 97(C), pages 220-234.

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