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CA's Plan to Resume Clean-Air Discourse Could Buoy State's Nascent Biofuel Sector


California's Air Resources Board this month will resume public meetings on its proposed low carbon fuel standard regulation, intended to help the nascent biofuels industry, expand the state's top-tier life-sciences megacluster, and fulfill Gov. Arnold Schwarzenegger's 2-year-old order to cut carbon production statewide by 10 percent.

ARB is reviewing comments made about the low-carbon standard at past public "workshop" meetings — one in October 2008 held after the release of the first draft; another held last month following a revised draft. A new draft will be the subject of a public discussion to be held by the board Jan. 30 from 9:30 a.m. to 4:30 p.m. at the California Environmental Protection Agency headquarters building in Sacramento, followed by the release in February of a formal staff proposal for 45 days of pubic comment.

ARB will hold public hearings on the regulations on March 26 and 27 and will vote on the new rules later this year. The low-carbon standard is required to be in place by Jan. 1, 2010, under a law enacted in 2006.

Robert Fletcher, chief of ARB's Stationary Source Division, which oversees development of the low-carbon fuel standard, told BioRegion News that over the next several weeks, staffers of the board will seek additional "information on the carbon intensity of various pathways, and specifically [look] at indirectly induced changes associated with biofuel from soybeans, cellulosic material, [and] ethanol from Brazilian sugar cane. We'll also be looking at discussing our environmental and economic analyses."

Another area of staff discussion, he said, was regarding how to define "regulated" parties subject to the low-carbon regulation, and how to track their compliance with the new law. The original October draft regulations defined regulated parties as "a refiner, importer, producer, or provider of a transportation fuel in California," but that wording was changed in the revised draft two months later to a 6-1/2-page set of rules specific to the gasoline and alternative fuels covered by the new measure.

"That could be a major change," Fletcher said. "We're dealing with not only the traditional refiners. We also have folks in the natural gas industry, the electricity industry, and more biofuels than were involved before.

"The complexity of how you track down and [identify] who is actually responsible for ensuring compliance with the regulation is getting a lot of attention," he added. "That will be a big issue."

All that attention, Fletcher said, won't likely result in ARB relaxing the regulation's compliance requirements, though the board "will probably look at some minor tweaks of that."

Another key issue: The low-carbon fuel standard proposed by ARB would measure biofuels not only based on traditional direct effects such as the energy used in producing, refining, transporting, and burning fuels, but also "indirect" effects such as land use changes, beyond where a fuel is produced, that are deemed to generate "significant" emissions subject to regulation.

Both the October and revised December standards assume that an acre of corn grown for ethanol is replaced with at least as much land, if not more, of corn grown for food. Significant indirect effects are those that "would have a measurable effect on the overall carbon intensity" of a fuel, Fletcher said.

Under the revised regs, the carbon intensity, or CI, of gasoline would be reduced between 2010 and 2020 by 10.5 percent from 96.7 grams of carbon dioxide per megajoule to 86.5 g/MJ, while that of diesel fuel would be lowered 10 percent from 95.8 g/MJ to 86.2 g/MJ.

The difference in percentage declines reflects a state assumption that the gasoline sold in 2010 will possess a higher CI than today's gas because its volume of ethanol is expected to rise during that time from 6 percent to 10 percent — and because ethanol production is assumed to have indirect effects not ascribed to diesel.


The carbon intensity of various alternative fuels varies widely. According to a 90-page report containing supporting documentation for the draft regulation, ethanol ranges in carbon intensity depending what it is made from. Sugarcane ethanol offers the lowest CI at 18.7 g/MJ, followed by ethanol fuels derived from waste and crops, both of which are rated at 20 g/MJ; "low-CI" ethanol designed to comply with the federal renewable fuel standard, 42.3 g/MJ; "low-CI" ethanol not compliant with RFS, 55 g/MJ; and traditional corn-based ethanol, 68.2 g/MJ.

Biodiesel enjoys lower CI ratings — 35.3 g/MJ for conventional crop-derived biodiesel and 20 g/MJ for "advanced renewable." Two other sources of alt-fuel fared worse than gasoline: Electricity was rated 106.7 g/MJ, while hydrogen derived from methane scored 153 g/MJ.

The proposed low-carbon regulation has come under fire by some biofuel makers, who contend it would create a competitive disadvantage for their fuels compared with traditional gasoline in California. That purported disadvantage could multiply, ethanol growers argue, if other states develop their own low-carbon fuel standards based on California's.

The New Fuels Alliance, a coalition of biofuel producers and advocates, has criticized ARB's reliance on measuring indirect effects because the standard is not widely used, and because its definitions would leave ARB what the group calls too much interpretation discretion.

"It is difficult to see how enforcing even conservative indirect effects against biofuels, especially while not enforcing any indirect impacts against other fuels (as is the current LCFS trajectory), would unfairly incent crop-based biofuels. More likely, it will perpetuate the status quo, and continue California on a path toward (increasingly less sustainable) oil dependence," the alliance and 30 biofuels industry leaders and their businesses and institutions wrote in an Oct. 23 letter to ARB Chairman Mary Nichols.

Brooke Coleman, the alliance's executive director, told BRN last week biofuel producers want makers of all other fuels to be subject to the same indirect and direct impacts criteria in weighing their carbon intensity.

"It creates a blatant, and we think fatal, bias in the regulation. If they pass a regulation that is this biased, it will be rejected over time as the biases are exposed," Coleman said in an interview. "A regulation that biased is going to destabilize the entire biofuels industry. You're basically not going to have biofuel capable of being in compliance with the [low-carbon fuel standard].

ARB's Fletcher said the board will not limit its indirect-effects rule to corn-based ethanol as producers of the product fear. He identified at least three additional biofuels he said would likely receive similar scrutiny: Brazilian sugar cane, cellulosic, and biofuels from soy: "All will have an indirect land use [standard]. And as we proceed, I'm sure that there will be other pathways that we will identify as having indirect effects," he said.

"Our objective is to come up with biofuels that help with reducing greenhouse gases. We've identified a number of compliance pathways to do so," he added.

ARB has argued that the production of ethanol and other biofuels generates environmental effects that should be reflected in their carbon-intensity ratings — an argument it has reduced to the phrase "Zero is not the answer."

Fletcher said ARB has shown sensitivity to the concerns of biofuel makers by pushing most of the carbon-intensity reductions required by the regs until after 2015, "which is, we think, sufficient time for the second and third generation of biofuels to hit the ground and come online. I don't believe it's going to stifle the industry at all. It should be more of an incentive for advanced biofuels than has ever been provided before."

At least one biodiesel producer agrees. "I would say the low-carbon fuel standard bodes very well for biofuels in general, but certainly for biodiesel," Joe Gershen, vice president of sales and marketing for Tellurian Biodiesel, which has offices in San Francisco and Venice, Calif.

While carbon intensities for biodiesel are more attractive than those of gasoline or ethanol, Gershen said, so too is the potential for reduced costs based on more efficient energy production.


"The energy balance is, with biodiesel made from soybean oil from the Midwest, including the effort of carting it out here, is not technically not the most sustainable way of doing it. But you still get 3.5 units back for every unit of fossil energy you put in," Gershen said.

"When you start using things like recycled cooking greases, and animal fat, [and other materials] closer to the source of production, distribution, and consumption, you're actually getting more like six to seven units back," he added. "That's a pretty spectacular return when you consider that with gasoline, you're driving backwards no matter what mileage you get: For every unit of energy you put into making gasoline, you get 0.8 units back or 0.9 units back."

In its supporting documentation report, ARB introduced seven scenarios for reducing carbon intensity and complying with the low-carbon standard — four for ethanol fuels, three for biodiesel fuels:

  • Scenario 1: Increasing the use of ethanol blends with lower carbon intensities through 2015, then gradually starting to replace ethanol with more advanced renewable fuels, with no corn-based ethanol used by 2017. This scenario also assumes more residents will drive "flexible-fuel" vehicles powered by gasoline or blended fuels of up to 85-percent ethanol, as well as at least 560,000 vehicles powered by electricity or hydrogen.
  • Scenario 2: Same as Scenario 1, only using cellulosic ethanol, advanced renewable ethanol, and sugarcane ethanol through 2015.
  • Scenario 3: Same as Scenario 2, only with 1 million electric or hydrogen vehicles on California's roads.
  • Scenario 4: Same as Scenario 3, only with 2 million electric or hydrogen vehicles on California's roads.
  • Scenario 5: Greater use of available low-carbon-intensity biodiesel fuels.
  • Scenario 6: Greater use of both low-carbon-intensity biodiesel fuels and compressed natural gas.
  • Scenario 7: Same as Scenario 6, but expanding the types of vehicles using biodiesel to heavy-duty plug-in electric hybrids.

According to the Renewable Fuels Association, an industry group that promotes the use of ethanol, as of Jan. 8, California has five ethanol plants with a total production capacity of 136.5 million gallons, plus a sixth plant whose capacity was not reported. Most produce ethanol from corn, though the Golden Cheese Co. of California produces 5 million gallons a year of ethanol using cheese whey.

The state has three filling stations that distribute 85-percent ethanol fuel, or "E85, plus two ethanol plants under construction with a total production capacity of 105 million gallons a year, according to RFA.

That's a fraction of the volume of ethanol predicted to be needed by 2020, when according to the state's energy commission, annual demand for ethanol will grow to 1.6 billion gallons.

In its Climate Change Proposed Scoping Plan, approved in December 2008, ARB estimated that state-based producers could meet this demand by producing up to 1 billion gallons per year of ethanol from waste products (municipal solid waste, forest residue, agricultural residues), and 600 million gallons per year of ethanol from corn.

Gary Yowell, an associate automotive standards engineer with the energy commission, told BRN California has nine biodiesel plants completed with a combined capacity of 37 million gallons at the end of 2008 — the plants have historically generally operated at one third of capacity, he added — as well as five plants under construction, and another 19 announced and/or in planning stages.


That's at odds with data from the US Department of Energy's Alternative Fuels and Advanced Vehicles Data Center, which show California with 16 biodiesel plants capable of producing 68 million gallons, six additional biodiesel plants under construction with no figure given on their total production capacity, as well as 11.9 million dry tons of cellulosic biomass and 400,000 dry tons of crop biomass.

One of the plants under construction has since been scrapped, and other plants under discussion may not come to fruition due to the economic and financial market upheaval of recent months, Yowell said.

Collectively, he said, all biofuels account for 5.05 percent of the petroleum displacement, which while measured from the 1990s has only shown measurable progress in the past five years: "It's growing. It's going in the right direction, but it's nowhere near the rate at which we would need to have substantive change."

While California's need for energy rises 365 million gallons a year just to meet the demand from the state's growing population, the supply of alternative renewable fuels is only rising about 50 million gallons a year, Yowell said.

In its scoping plan, ARB also estimates that demand for biodiesel would grow by 2020 from the current 72 million gallons per year in plants built, under construction, or proposed, to 675 million gallons per year. The board envisions California meeting that demand by producing between 125 million to 500 million gallons per year of biodiesel from waste oils and fats, and 100 million to 200 million gallons per year from soybean oil.

Speaking with BRN in June 2008, Victoria Bradshaw, secretary of California's Labor and Workforce Development Agency, said biofuels would strengthen the life-sci cluster that California officials and industry leaders believe can be created along the Pacific from Sacramento south through the Central Valley region. That stretch is well inland from the state's three life-sci anchors — the San Francisco Bay Area and San Diego regions, both focused on biotech and pharmaceutical drug discovery, and the Orange County/suburban Los Angeles region more closely associated with medical device development.

Two University of California schools, she said, will play key roles in that effort: UC Merced with its focuses on medicine and allied healthcare, and UC Davis, a key academic institution in the development of biofuels. UC Davis made news in 2006 when it announced a five-year, $25 million project with Chevron to develop renewable transportation fuels from "farm and forest residues, urban wastes, and crops grown specifically for energy."

"That will be the basis on which we expand our manufacturing. It's because we will have those research facilities close by, outside of the home of what we consider biotech," Bradshaw said in an interview at the Biotechnology Industry Organization 2008 international convention, held in San Diego.

"We look for opportunities. And I think that while the central Valley, some say that is agriculture, we also look at agriculture as a benefit because of biofuels. And while ethanol may be [the principal biofuel of] this generation, there are many generations coming. A lot of them are based on agriculture, and it may not be agriculture in a traditional sense. We think the cost of our doing business in some of those areas clearly is less, and there's an opportunity there," Bradshaw told BRN.

Yet the Bay Area also has a presence in alt-fuels. In December, the US Department of Energy dedicated a $135 million Joint BioEnergy Institute in the San Francisco suburb of Emeryville charged with a five-year mission to develop the next generation of biofuels from plants.

Fuel Stop

ARB released the low-carbon fuel standard in October 2008, more than two years after Schwarzenegger released a Bioenergy Action Plan for California that set targets to eventually replace gasoline with biofuels. The plan committed California to replacing the equivalent of 930,000 gallons of gasoline with biofuels by 2010 — a figure that balloons to 1.6 billion gallons in 2020, and 2 billion in 2050. The governor also set biofuel production percentage targets of at least 20 percent by 2010, 40 percent by 2020, and 75 percent by 2050.


A year later, Schwarzenegger directed the state to set a low-carbon fuel standard and to reduce by 10 percent the carbon content of transportation fuels sold in California by the year 2020. California has projected that the 10 percent reduction would require replacing 20 percent of the state's gasoline consumption with lower-carbon fuels — more than tripling the state's renewable fuels market — and would add 7 million alternative-fuel vehicles to state roads.

Since Schwarzenegger issued that executive order in January 2007, California officials have passed several measures intended to cut carbon and promote biofuel use. They include:

  • Assembly Bill 32, also called the Global Warming Solutions Act of 2006, which requires California to reduce its greenhouse gas emissions to 1990 levels by 2020, in part through a cap-and-trade program.
  • Assembly Bill 1811 of 2006, which created incentives for producing alternative fuels in California, as well as for advancing vehicle technologies, and funding research, development, and testing of alternative fuels in the state.
  • Senate Bill 1505 of 2006, which directed ARB to develop environmental regulations for production of hydrogen for transportation use.
  • Assembly Bill 118 of 2007, which created the energy commission's Alternative and Renewable Fuel and Vehicle Technology Program, a $1 billion, seven-year state effort to increase alternative fuel use through incentives to public agencies, vehicle and technology consortia, businesses, public-private partnerships, workforce training partnerships and collaboratives, fleet owners, consumers, recreational boaters, and academic institutions. "We hope by spring of this year to get applicants and be able to find a way to incentivize and motivate them and move them forward," Yowell said.
  • Assembly Bill 1007 of 2007, which directed the state Energy Resources Conservation and Development Commission, in partnership with ARB, and in consultation with other state agencies, to develop and adopt a plan for increasing the use of alternative fuels.

In the resulting State Alternative Fuels Plan, completed in 2007 by ARB and the California Energy Commission, the state committed itself to increasing the use of alternative fuels to 20 percent of on-road transportation fuel use by 2020, and 30 percent by 2030. The report also directed the state to reduce its GHG emissions to 2000 levels by 2010, to 1990 levels by 2020, and to 80 percent of 1990 levels by 2050.

In addition, the energy commission every two years must track the state's progress toward another renewable-energy goal. On Nov. 17, 2008, Schwarzenegger signed Executive order S-14-08, which raised to 33 percent the proportion of retail electricity the state must generate from renewable energy sources by 2010, up from a 20-percent goal set in 2002 by his predecessor, Gray Davis.

"The Energy Commission believes the state can reach the 33 percent renewables target by 2020. There are, however, major barriers to achieving this goal," such as the state's archaic electric transmission and distribution system, the commission concluded in its 2008 Integrated Energy Policy Report Update, available here. The report is a state-required assessment of progress toward goals set in the previous year's full IEPR report, available here.


Speaking with BRN, Bradshaw said meeting the carbon-reduction targets set by Schwarzenegger remained a high state priority despite the state's budget shortfall, which has worsened during the upheaval faced by the economy since last September: "We're putting every effort into it, every state agency."

As part of crafting the low-carbon standard ARB staffers have launched studies intended to detail the economic and environmental effects of the low-carbon fuel standard. In a memo summarizing the economic analysis effort, the board acknowledged a complicating factor in generating the study: The volatility of gasoline prices in recent months.

Yowell of the energy department said it was too soon to assess what effect falling gasoline prices have had on the development of California's alt-fuel industry.

ARB has said it will work with the California Energy Commission to revise its estimate of gasoline per-gallon and oil per-barrel prices to reflect market changes since the 2007 alternative fuels plan The 2007 alternative fuels plan envisioned gasoline costing between $2.72 and $3.47 a gallon in 2010, and rising to $2.94 and $4.41 a gallon in 2020. The scoping plan approved last month assumed an $89-a-barrel price of crude oil in 2020 — a rough mid-point between 2008's high and low prices. Those prices ranged in 2008 from a high of more than $147 a barrel in July, to a low of just under $37 a barrel six months later.

However, a poll of oil analysts' forecasts by Reuters showed an average price forecast of $49 a barrel in the first quarter of 2009 — climbing by year's end to an average of $58.48, yet still $14 below the analysts' previous forecasts.

Despite the uncertainty, ARB concluded in the memorandum that California and its biofuel makers would benefit from the low-carbon fuel standard.

"The LCFS would provide a significant economic opportunity for producers of alternative fuels, including in-state producers," the memorandum stated. "As alternative fuels displace traditional fuels in the marketplace, staff expects that refiners would supply nearly similar overall amounts of transportation fuels, except now obtaining their blend stocks from nontraditional sources. Out-of-state producers and importers may see reduced shipments due to the introduction of alternative fuels, although the impacts on fuel distributors in the state would be minimal."

Matthew Gardner, president and chief executive officer of BayBio, the life-sci industry group for the Bay Area and northern California, added: "We've got a whole bunch of new technologies that have yet to come to scale. There's so much research going on on feedstock, production methods, enzyme-added conversion.

"If it [the low-carbon fuel standard] is not done carefully, it may inadvertently take a swipe at one of those whole sectors of innovation that has got to be part of the portfolio of solutions for us to reach energy independence. It's something that requires careful crafting."

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