California Carbon Counting

Soy biodiesel's carbon score came in disappointingly low for preliminary scoring done for California's Low Carbon Fuel Standard, but California's new regulation may not all be bad news for the biodiesel industry.
By Susanne Retka Schill | July 15, 2009
The biodiesel industry was looking for a shot in the arm with a huge, new market opening up for biodiesel stimulated by the California Low Carbon Fuel Standard. After all, with no state incentives or mandates, California uses only about 40 million gallons of biodiesel in its 4 billion-gallon-per-year diesel market. The disappointment was palpable when the incorporation of indirect land use into carbon intensity calculations caused soy biodiesel's star environmental status to plummet. Volleys of letters and petitions and comments were sent to the California Air Resources Board before the April hearing arguing that the policy is ahead of the science of indirect land use modeling. The National Biodiesel Board pointed out a number of deficiencies in the modeling used by CARB to determine carbon intensity rating, and as a result soy biodiesel's score improved some-to a preliminary 30 percent carbon intensity reduction. Soy biodiesel's carbon intensity reduction would be more than doubled if questionable indirect land use criteria weren't included. Biodiesel from waste materials, however, fares much better than soy methyl ester; mainly because it has no land use impacts and displays an approximate carbon intensity reduction of 90 percent compared to fossil diesel.

More opportunities will be available for the biodiesel industry to give input as the policy implementation date approaches. So far, only a preliminary value for soy biodiesel has been published. A final score for soy and carbon intensity score for other biodiesel pathways should be published by October, after which a public comment period will follow. Those numbers may be adjusted again after CARB reviews the indirect land use modeling with the help of an expert workgroup-a process adopted by CARB in response to the heavy lobbying prior to its April hearing months ago. CARB will schedule at least two workshops, one in the summer and one early fall, according to Dean Simeroth, chief of CARB's criteria pollutants branch. The workshops, he says, "allow the public to influence how we design [the expert workgroup]." The workgroup's report is expected back by the end of 2010, allowing time for adjustments before the first carbon reductions are required in 2011.

In addition, Simeroth's staff at CARB is preparing to meet with the U.S. EPA to explore the differences in the two agencies' modeling results. Soy biodiesel fared even worse under EPA's calculations in its proposed rule to implement the modified renewable fuels standard (RFS) published in May, showing a 22 percent greenhouse gas (GHG) reduction in one scenario when compared to the baseline conventional diesel, and a four percent increase in another. "This was one of the later numbers developed by both of us, so we didn't have time to get into the details with each other," Simeroff explains. "The coproduct is a very critical number, and how you deal with the coproduct. Frankly, 80 percent of the soymeal is left after the oil is extracted. Did we account for that correctly? What's the value of that compared to the whole soybean? What's the yield? Did we use the right yields per acre?"

With the indirect land use modeling contributing nearly half the GHG emissions of soy biodiesel, many in the industry are dissecting the models to find other inadequacies and questioning other assumptions.

Differing Goals
While California and the EPA are sharing heat from the indirect land use controversy, they actually are implementing quite different policies. The title of the federal statute beefing up the RFS, the Energy Independence and Security Act of 2007, reveals the main goal of the legislation-to increase the volume of home-grown fuels used in the U.S. The RFS is a volumetric mandate, with a "cap" of 15 billion gallons a year for conventional biofuels. Current corn ethanol and soy biodiesel production is grandfathered in to the conventional biofuel mandate without GHG reduction targets. Growth in the renewable fuel mandate above the 15-billion gallon conventional biofuel volume is targeted at advanced biofuels, with biomass-based diesel required to meet a 50 percent GHG reduction target to qualify.

In contrast, California's Low Carbon Fuel Standard doesn't set volumetric mandates for alternative fuels, but rather a goal of reducing the carbon intensity of transportation fuels used in California by 10 percent in the next 10 years, addressing climate change instead of energy independence. The system doesn't make choices among alternative fuels, but rather requires that refiners and importers of transportation fuels reduce their overall carbon intensity. Unlike the federal RFS that applies to liquid fuels only, California's low carbon standard includes electricity used in electric cars and gaseous fuels such as liquefied natural gas used in the transportation sector. CARB modified the life-cycle analysis model called "Greenhouse Gases, Regulated Emissions and Energy Use in Transportation" (GREET) developed by the Argonne National Laboratory to calculate the carbon intensity of different fuel pathways, incorporating California-specific values where applicable. Indirect land use was calculated using a second model, the Global Trade Analysis Project (GTAP) developed at Purdue University. The GREET model shows soy biodiesel contributing GHG emissions totaling 26.93 grams of carbon dioxide equivalent per mega joule (gCO2e/MJ).

The emissions attributed to indirect land use as calculated in the GTAP model amounts to 42 gCO2e/MJ, totaling 68.93 gCO2e/MJ compared to conventional diesel at 94.75 gCO2e/MJ.

Using the California GREET model, the various components in the soy biodiesel life cycle, shown by their percent contributions above, add up to 26.93 gCO2e/MJ. Emissions attributed to indirect land use using the GTAP model add another 42 gCO2e/MJ for a total of 68.98 gCO2e/MJ.

A positive divergence from EPA's RFS rule is that California has included a system to allow a unique fuel pathway to be scored individually. "People can come in and say, 'My fuel is not on the list, or I can beat the carbon intensity that is on the list and here's my information,'" Simeroths explains. "We're hoping the documentation is within reach, and is something that state departments of agriculture or USDA can help us with," he adds. "Our intention is that other government agencies can help." Companies considering investments in new technology or feedstock development can present their data in an informal hearing process to get a preliminary indication of a carbon score before proceeding.

Simeroth adds that the agency hopes to complete a list by December of alternative practices with negligible or no land use impact, which will include such things as double cropping.

Producers of alternative fuels can also choose to use the default carbon score found on the appropriate lookup chart. For most biodiesel producers, once they have a carbon score, they're done. "Other than having the documentation, if we need to audit to see if they are representing it correctly, they don't have to report anything to us," Simeroth says. For the first year in 2010, obligated parties are asked only to report, and the actual carbon reduction requirement begins in 2011. Compliance is backloaded, meaning the first year's reduction targets are quite low-just 0.25 percent in 2011-increasing at greater rate in later years to achieve a 10 percent reduction by 2020. The backloading gives time for the system to be adopted and for new technologies and feedstocks to develop. Every three years, CARB will evaluate all of the elements of the program and the cost to the consumer.

If the costs of new technologies come in lower than projected, the targets for carbon intensity reductions may be accelerated. As it stands, CARB has projected the cost to the consumer both in near and longer term projections to amount to a few pennies on a gallon of fuel.

Biodiesel Industry Response
For the California biodiesel industry, the slow ramp of the new regulations is a disappointment. "This is too slow, it's not aggressive enough and will take years to implement," says Eric Bowen, Tellurian Biodiesel Inc. CEO and chairman of the California Biodiesel Alliance. However, the California biodiesel industry overall is satisfied with the new regulations, he adds. "The California biodiesel industry is predominantly made up of people who produce biodiesel from waste feedstocks," Bowen says. "In a context of a low carbon fuel standard, those fuels are scoring incredibly low and thus have the greatest value." The alliance estimates there are enough waste oils and fats in the state to annually support about 100 million gallons of biodiesel production. Despite this, however, California in-state biodiesel production is rather modest; approximately only 20 MMgy in 2008. With two new facilities coming online this year though, this number will double. In 2008, about half of the 40 million gallons consumed instate came from elsewhere.

Bowen suggests the future for Midwestern soy biodiesel may not be totally gloomy. "The soy biodiesel industry-and we market soy biodiesel ourselves so I consider us a subset of the industry-isn't going to get a big shot in the arm as they originally hoped," he says. However, with an overall goal of reducing carbon intensity by 10 percent and a limited amount of waste biodiesel available from California producers, he says, "if you're going to reach a 10 percent goal you have to use a whole lot more of that 30 percent product (soy biodiesel) than you do the 90 percent product (waste biodiesel)."

That is different than the federal model, which Bowen paraphrases as stating, "If you're more than 50 percent [reduction in GHG] you're biomass-based diesel, if you're less, you're not. Now California doesn't care where you are. If you're lower than petroleum you can come and play. They're not going to tell people exactly where they need to be, let the buyers of the fuel figure it out. Let the market figure out which is most efficient. The California model is far more flexible and I would say far more favorable to the soy biodiesel industry than the federal government, because of the approach they're taking."

The Low Carbon Fuel Standard will become the market driver says Harry Simpson, president and CEO of Crimson Renewable Energy LP. Crimson is one of the newest biodiesel producers in the state, bringing a 30 MMgy multifeedstock plant online this summer in Bakersfield, Calif. "I think it remains to be seen how the obligated parties comply," Simpson says. It is expected that carbon credits generated by electric vehicles and gaseous alternatives will be minimal. "With diesel, there are just a few compliance options-renewable diesel or biodiesel," he says. "There's some thought that renewable diesel from Neste's new refinery in Singapore will be shipped to California. It depends on how the Air Resources Board will score that, but it's hard to imagine that palm renewable diesel will have a better score than soy biodiesel."

Soy biodiesel is likely to find even near-term markets for seasonal biodiesel blends, Simpson adds. "Even in California in winter you would be hard pressed to use tallow-based biodiesel at a truck stop for B20 application," he says. "Anyone near the mountains or further north in California gets frost or snow."

As the Low Carbon Fuel Standard gets phased in to the California market, one of the unknowns is how the infrastructure will develop. "If you look at the cost for a refiner to comply and the cost of the investment in blending at the terminal, there's certainly an incentive for them to not make biodiesel blending available at every one of their terminals,"
Simpson says. In the first years of the program, it is likely the industry will use wide-spread low-level blends to comply, and some companies may opt to buy credits rather than make the investment in infrastructure to buy and blend biodiesel.

With the requirement to blend not taking effect until 2011, and then at levels at 1 percent or less for the first three years, there will be time for the petroleum industry to make its compliance plans and see what develops in transportation carbon credit trading. For the biodiesel industry, there will be an intense focus on challenging indirect land use. The stakes are high for the industry to successfully influence California's precedent-setting carbon regulation. The Province of Ontario is currently evaluating the adoption of a low carbon standard and 11 states in the Mid-Atlantic and Northeast regions, from Maryland northward, have indicated an interest in pursuing a similar policy.

Susanne Retka Schill is assistant editor of Biodiesel Magazine. Reach her at [email protected] or (701) 738-4922.
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