Low Carbon Standard to “Fuel” Renewable Energy Market

The Low Carbon Fuel Standard (LCFS) proposed by California Governor Arnold Schwarzenegger earlier this week is expected to triple the size of the California renewable fuels market and place more than 7 million alternative fuel or hybrid vehicles on the state’s roads by 2020.

Schwarzenegger announced on Tuesday he will issue an Executive Order to establish the LCFS for all transportation fuels sold in California in order to reduce the carbon intensity of the state’s passenger vehicle fuels by at least 10 percent by 2020. The standard calls for fuel providers to ensure that the mix of fuel they sell into the California market meets, on average, a declining standard for greenhouse gas (GHG) emissions measured in CO2-equivalent gram per unit of fuel energy sold. “The governor’s goal will be to reduce the carbon intensity of our transportation fuel use 10 percent by 2020. What that means is that fuel providers will have to meet a declining standard of carbon intensity between now and 2020 on a grams per BTU basis and we’ll do that looking at the full life-cycle of the fuel production process — what is known as well to wheel,” said Dan Skopec, Undersecretary for the California Environmental Protection Agency during a press briefing on Tuesday. The LCFS will use market-based mechanisms that allow providers to choose how they reduce emissions while responding to consumer demand. For example, providers may purchase and blend more low-carbon ethanol into gasoline products, purchase credits from electric utilities supplying low-carbon electrons to electric passenger vehicles, diversify into low-carbon hydrogen as a product and more, including new strategies yet to be developed. “Another key component of this policy is that [there will] be compliance flexibility built into it, and what that means is providers that are able to produce low-carbon fuels beyond the standard will have the opportunity to bank those credits or sell those credits to providers that may not be able to meet the standard. So providers will have three options. They can either sell fuel with the decreasing carbon intensity. They can use credits they have banked from previous years. Or they can buy credits from folks that have produced lower carbon fuels and sold them into the market,” added Skopec. The Governor’s Executive Order directs the Secretary for Environmental Protection to coordinate the actions of the California Energy Commission (CEC), the California Air Resources Board (ARB), the University of California and other agencies to develop the protocols for measuring the “life-cycle carbon intensity” of transportation fuels. “As a world leader in energy efficiency, alternative energy and reducing greenhouse gases, California’s new low carbon standard is an innovative action that will diversify our fuel supplies and establish a vibrant market for cleaner-burning fuels,” said Schwarzenegger. This analysis will become part of the State Implementation Plan for alternative fuels as required by AB 1007 and will be submitted to the California Air Resources Board for consideration as an “early action” item under AB 32 — the historic Global warming Solutions Act designed to cap global warming emissions at 1990 levels by 2020. Upon adoption as an “early action” item, the regulatory process at ARB will begin to put the new standard into effect no later than December, 2008. “With a low carbon fuel standard, Californians can expect to see more renewable fuels like ethanol and biodiesel at their local gas station and, in time, can look forward to driving a new a plug-in hybrid or hydrogen fuel cell vehicle,” according to a statement released by Environment California.

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