California s Low Carbon Fuel Standard Outlook and Opportunities Philip Sheehy, PhD EMA Annual Meeting September 27, 2013 0
Overview Introduction Basic Rules of the Game (a bit redundant with whatever Dan and Bill said) Lifecycle analysis: The 60 second tutorial Compliance Scenarios: Where are the opportunities Compliance options and opportunities: the long view My favorite graph Three takeaways A bunch of extra slides that promise to bore 50% of audience 1
INTRODUCTION Basic Rules of the Game Deficits must balance credits (with some carryover of deficits allowed). Credits can be banked; do not lose value. The compliance schedule can change but only if it gets higher. In other words, crude switching can be part of, but not exclusively a compliance pathway. Each fuel needs an approved pathway. 2
INTRODUCTION Lifecycle Analysis 3
COMPLIANCE SCENARIOS Compliance options and opportunities Biofuel blending: dominant pathway for compliance; generally accounts for at least 55-60% of credits generated through 2020. Ethanol: corn, sugarcane, and cellulosic Biodiesel: Abundant, available and not cheap. Renewable gasoline: Promising advanced biofuel (more so than cellulosic ethanol in my opinion) Renewable diesel: Already a significant player Advanced vehicle technologies: heavier lift because need to get vehicles and infrastructure in place. Electric vehicles: Not a major player yet; but will play significant role moving forward due to other regulations (ZEV Program) Natural gas: Don t tell anyone, but natural gas is cheap. CNG, LNG, and biogas. Hydrogen: Good luck out there. 4
COMPLIANCE SCENARIOS Credits and Deficits 100 90 diesel gasoline Carbon intensity (g/mj) 80 70 60 50 40 30 20 10 biodiesel, soybeans ethanol, CA corn CNG renewable diesel biodiesel, FOGs LNG ethanol, sugarcane electricity ethanol, cellulosic renewable gasoline biomethane hydrogen biodiesel, corn oil 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 5
COMPLIANCE SCENARIOS Scenario analysis takeaways Opportunities in diesel replacements Over-compliance is critical CARB is actively considering ways to get more credits in the market 18 18 LCFS Credits (millions) 16 14 12 10 8 6 4 2 Banked Credits Deficits -CARBOB+ ULSD Off-Road Electrification Biogas-HD NG-HD RD-tallow BD Canola BD-corn oil BD-waste greas BD-soy Renewable Gasoline Biogas - LD/MD Natural Gas - LD/MD Hydrogen Electricity Ethanol - Cellulosic Ethanol - Sugarcane Ethanol - Low CI Corn Ethanol - CA Ethanol - Conv Corn LCFS Credits (Millions) 16 14 12 10 8 6 4 2 Banked Credits Deficits -CARBOB+ ULSD Off-Road Electrification Biogas-HD NG-HD RD-tallow BD Canola BD-corn oil BD-waste greas BD-soy Renewable Gasoline Biogas - LD/MD Natural Gas - LD/MD Hydrogen Electricity Ethanol - Cellulosic Ethanol - Sugarcane Ethanol - Low CI Corn Ethanol - CA 0 2013 2014 2015 2016 2017 2018 2019 2020 0 2013 2014 2015 2016 2017 2018 2019 2020 Ethanol - Conv Corn 6
Thank You! Philip Sheehy philip.sheehy@icfi.com 7
Additional information Market observations and assessments for alternative fuels and vehicle technologies. 8
MARKET SNAPSHOTS Ethanol (1 of 2; Conventional and Advanced) Conventional ethanol producers are lowering their carbon intensity. California ethanol is down to around 80 g/mj; moving to 70 g/mj. Cellulosic ethanol: A four letter word; but even with setbacks, there have been advancements in low CI ethanol. We did consider a shift to E15. Percent of Vehicles MY2001+ in California 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9
MARKET SNAPSHOTS Ethanol (2 of 2; Sugarcane) 90 million gallons imported to California ports directly in 2012. All in Q3 and Q4. Additional imports via rail likely; but smaller volumes. 14,000 50 million gallons imported through Q1 and Q2. Million gallons 12,000 10,000 8,000 6,000 4,000 2,000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Production 7,284 5,997 6,805 7,495 8,294 9,111 9,896 10,932 11,408 11,987 12,695 Consumption 6,795 5,796 6,440 7,061 7,590 7,761 7,972 8,661 8,797 9,444 10,103 Net export 489 201 365 435 704 1,350 1,924 2,271 2,611 2,543 2,592 10
MARKET SNAPSHOTS Biodiesel Still lots of soy biodiesel, but some shifts in the market: Feedstock Consumption for Biodiesel Feedstock (million lbs) 2011 2012 Change Canola Oil 847 787-60 Corn Oil 304 571 +267 Soybean Oil 4,153 4,023-130 Animal Fats a 1,289 840-449 Recycled Feeds b 666 900 +234 Total 7,259 7,291 32 a. Includes poultry, tallow, white grease, and other. b. Includes yellow grease and other. Source: EIA 11
MARKET SNAPSHOTS Drop-in Biofuels Renewable diesel Compliance scenarios include 150-300 million gallons in 2020. Neste has been most active here. Reported shipments of around 100 million gallons this year (2013); potential to increase that in future years. We only assume a fraction of Neste s deliveries to California are used for LCFS compliance still using significant volumes of palm oil as feedstock. Domestic production: Diamond Green is online at about 135 million gallons per year. Renewable gasoline Less than 90 million gallons per year by 2020 in all scenarios. This is about 50% of EIA projections coming to California. EIA is very conservative on this. We ve seen a stronger uptick in renewable gasoline potential than advanced ethanol. 12
MARKET SNAPSHOTS Natural Gas Breaking news: natural gas is cheap. Transit agencies are the base here for the near-term future about 85 million gge of consumption already. More vehicle offerings than ever before. Not just conversions any more Significant interest in medium-duty applications high mileage, good payback. LNG is increasing; will help penetration into the heavy-duty market (e.g., goods movement). Lots of interest in biogas or renewable natural gas (RNG). 13
MARKET SNAPSHOTS Electricity (1 of 2) PEV sales are strong in California. PEV Stock -Vehicles on the Road 350,000 300,000 250,000 200,000 150,000 100,000 50,000 PEVs Today PHEVs CARB Most Likely Compliance Scenario PHEVs BEVs BEVs 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Year 14
MARKET SNAPSHOTS Electricity (2 of 2) OEMs are investing in PHEVs hence our weighting towards these vehicle architectures. Powertrain technologies OEMs Suppliers ICE downsizing 31% 24% Plug-in hybrid 29% 23% Hybrid fuel systems 18% 11% Battery (range extender) 10% 18% Pure battery 6% 13% Fuel cell 6% 11% Source: KPMG Global Auto Executive Survey 2013 It appears that CARB is interested in expanding eligibility by including fixed guideway and electric forklifts. Is there room for more electrification technologies? Yes. 15
MARKET SNAPSHOTS Impacts on Gasoline and Diesel Using trends from 2011 IEPR Transportation Forecasts, updated with volumes reported for LCFS. Modest reductions in CARBOB demand from baseline 4.5-6.3 percent reduction in scenarios. Significant reductions in ULSD due to biodiesel, renewable diesel, and natural gas consumption. More room for compliance in diesel sector. 18.7-24.1 percent reduction in scenarios. Impacts on refining sector (and other economic sectors) detailed in Phase 2 of work (ongoing). 16
REMI MODEL Description Using 2 regions in model: California and Rest of US 70 sectors; middle level of disaggregation available for expenditures in REMI (160 is maximum). Inputs Fuel expenditures Demand for lower carbon fuels Infrastructure expenditures Revenue changes (IOUs) Outputs Gross state/regional product Employment and income Changes in total economic production Inter-industry and aggregate impacts Sensitivity analysis associated with key parameters such as fuel mix, fuel costs, fuel production potential, and location of production. 17
CO-BENEFITS Positive Externalities GHG emissions: Focus on the social cost of carbon (SCC), an economic parameter to estimate the cost of an additional ton of CO 2 -equivalent emissions. More precisely, this term is the change in the discounted value of the utility of consumption denominated in terms of current consumption per unit of additional emissions. Air quality pollutants: Pollutants are considered negative externalities. Using economic value of avoided emissions in the form of health and environmental benefits. Reduced petroleum dependence: Leiby (ORNL) estimated the energy security benefits of reduced US oil imports. The research focuses on two components of energy security benefits: monopsony and macroeconomic disruption or adjustment costs. 18
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