The California Low Carbon Fuel Standard. John D. Courtis August 10-12, 2009

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1 The California Low Carbon Fuel Standard John D. Courtis August 10-12, 2009

2 Why LCFS

3 GHG Emissions (MMTCO2e) Large GHG Reductions Required to Meet 2020 Target and 2050 Goal MMT -341 MMT

4 Transportation Emissions are Large and Increasing

5 LCFS Framework Governor Schwarzenegger established the LCFS in January 2007 UC completed analysis for LCFS feasibility in 2007 ARB identified LCFS as AB 32 discrete early action measure in June 2007 Board approved LCFS on April 2009 Final adoption LCFS on December 2009

6 Overview Regulatory requirements Importance of lifecycle analysis and results Economic impacts Current activities

7 LCFS Requirements

8 Regulated Parties Petroleum and biofuels providers are the regulated parties Providers of other fuels that meet 2020 or earlier levels must opt in to earn credits: Electricity Hydrogen Natural Gas

9 LCFS Standards Require a 10 percent reduction in fuel carbon intensity(ci) by 2020; baseline 2010 Apply to fuel (fossil+biofuel) mix Separate standards for gasoline and diesel ARB has established CI values for most fuels and will establish CI values for other potential fuels.

10 The LCFS Compliance Schedule

11 Compliance and Enforcement Requirements Regulated parties required to report quarterly and annually Enforcement includes records review, field inspections, and audits and penalties ARB is developing a software tool for fuel carbon reporting and credit tracking

12 LCFS Flexibility: Market-Driven Compliance Supply a mix of fuels with average carbon intensity(over a year) equal to the standard Allows purchased or banked credits to be used to meet the standard Allows companies to generate their own CI values (certain criteria must be met)

13 LCFS Benefits

14 Benefits: Pavley and LCFS Reverse GHG Trend 250 GHG Transportation Trends GHG (MMT) Pavley Pavley & LCFS

15 LCFS: Benefits Reduces GHG in California by 16 MMT in 2020; total GHG benefits 23 MMT No significant adverse impacts Co-Benefits: Potential reductions in criteria pollutants with advance vehicles Encourages technology innovation and sets stage for future GHG reduction

16 LCFS: Impact on Fuels Increase use of: Low carbon corn or sugarcane ethanol Cellulosic ethanol Renewable diesel and biodiesel Electricity, hydrogen, natural gas And decrease the use of: Petroleum High carbon biofuels

17 Importance of Lifecycle Analysis

18 Estimating CI for LCFS Use lifecycle analysis for GHG emissions from all facets of fuel production, distribution, and use Selected methodological approach: Part 1: Direct effects Use CA GREET Part 2: Land Use Change effects (or iluc) Use GTAP for estimating effects of land use change

19 Gasoline: Direct Effects (CA GREET) 73 g/mj 7 g/mj 14 g/mj Oil Well 1 g/mj Refinery 1 g/mj Vehicle Transportation Transportation Gasoline 96 g/mj

20 Corn Ethanol: Direct and LUC Effects (CA GREET+GTAP) 36 g/mj 38 g/mj Emissions are Offset Corn Field 2 g/mj Bio-Refinery 3 g/mj Vehicles Transportation Transportation Blend with gasoline Land Use Change 30 g/mj -12 g/mj Corn Ethanol 97 g/mj GTAP Co-products

21 GTAP Results: Land Conversion (per Bgal biofuel production increase) Land Converted (1000's ha) Corn Ethanol Sugarcane ROW ROW ROW Brazil ROW U.S. Brazil U.S. Forest Pasture Forest Pasture

22 Range of LUC Carbon Intensity Values for Corn Ethanol Searchinger et.al. ARB Proposed Value ARB Upper Bound RFA ARB Lower Bound LUC Carbon Intensity (gco 2 e/mj)

23 Carbon Intensity of Tomorrow s Fuels Carbon Intensity (CO2e/MJ) Baseline Indirect Direct 2020 Goal 0 Gasoline High CI Corn Ethanol Sugarcane Ethanol Low CI Corn Ethanol Soybean Biodiesel Cellulosic Ethanol (non-food crop) Cellulosic Ethanol (Waste) Electricity Hydrogen

24 Status of LUC Analysis Completed LUC analysis for corn ethanol and Brazilian sugarcane ethanol Work in progress Soy biodiesel: preliminary results Sept Cellulosic ethanol: later this year

25 LCFS Treats All Fuels Fairly Land use change contributes to carbon intensity of certain biofuels ARB have not identified any significant indirect effects from non-biofuels, though research is ongoing Open process; results and assumptions shared with stakeholders

26 Economic Impacts Cost-of-compliance basis Overall savings estimated for Impact dependent on crude prices and production costs of alternative fuels Recognized uncertainties could result in slight costs

27 Federal Fuel Volumes Volume (billion gallons) Advanced Renewables Corn Ethanol

28 Federal Renewable Fuels Standard Mandates volumes of biofuels with less focus on carbon intensity Existing corn ethanol, no improvement New corn facilities, 20% reduction Other biofuels, at least 50% reduction Cellulosic biofuels, 60% reduction Reduces GHGs nationwide by 3 percent

29 LCFS Current Activities

30 Current Activities Finalize the regulation Incorporate specific regulatory amendments Applicability, definitions, reporting, credits & deficits, etc Include additional fuel pathways Brazilian sugarcane changes, LNG, digesters, LFG, etc Workshops Prepare FSOR and submit to OAL Expected final approval-end 2009 Develop Compliance and Reporting Tool

31 Current Activities (cont.) Prepare guidance document to streamline the approval process for new pathways Create an expert workgroup to refine and improve land use and indirect effects analysis (report to the Board by end 2009) Land use effects of biofuels, indirect effects of other fuels, GREET issues, comparative modeling aproaches, etc

32 Current Activities (cont.) Evaluate electric vehicle issues in LCFS Third party charging, alternatives to metering, credits for off-road (forklifts, etc.) Create best practices guidance for siting biorefineries Establish the details of LCFS credit trading program Workplan on sustainability

33 Current Activities (cont.) Coordinate with regional, national, and international groups Create an advisory panel; regulatory review 2012, 2015

34 LCFS is on track Summary 2010(reporting year), 2011 (compliance year) Very Optimistic Significant interest from 1 st generation biofuel producers to improve CI Working with 2 nd,3 rd generation biofuel producers to define CI for new fuel pathways