November 20, 2014

California Low Carbon Fuel Standard

A Status Report

California Environmental Protection Agency

Air Resources Board

Agenda

• Quick review of the LCFS

• Compliance to date

• LCFS credit market

• Lawsuits

• Proposed re-adoption

• Future outlook

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LCFS Key Objective

• Reduce carbon intensity of transportation fuel pool by at least 10% by 2020

• Expected benefits:

− (~16 MMT CO2e reduced in 2020)

− Transform and diversify the state’s fuel supply

− Enhance energy independence/security

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LCFS Accounting System Straightforward

4

Fuels above standard generate deficits

Fuels below standard generate credits

4

Carbon Intensities of Some Fuels

• Gasoline 99.49 gCO2e/MJ

• Diesel 102.73 gCO2e/MJ

• Corn Ethanol 69 - 117 gCO2e/MJ

• Sugarcane Ethanol 45 – 59 gCO2e/MJ

• Biodiesel 4 – 48 gCO2e/MJ

• Methane ~0 – 99.6 gCO2e/MJ

• Electricity 35 – 46 gCO2e/MJ

5

LCFS Credits and Deficits

6

LCFS Credits

Ethanol; 59.7%

Biodiesel; 13.2%

Re-new-able

Diesel; 14.7%

Natural Gas;

10.3%

Electricity; 2.0%

Source of Credits through Quarter 2 of 2014

7

What Have We Seen Already at 1%?

• Ethanol CI values continue to decrease– 200 MM gal/yr low-CI ethanol

• Renewable diesel production is increasing– 200 MM gal/yr biodiesel and renewable diesel

• Renewable natural gas production is increasing and moving toward transportation use– 150MM DGE/yr CNG & LNG

• New fuel pathway applications for lower CIs still pouring in

8

LCFS Lawsuits

• Federal: 9th Circuit Court of Appeals

− Rejected several constitutional claims

− Returned case to district court for additional determinations

− U.S. Supreme Court denied plaintiffs’ request for review

• State: 5th District Court of Appeal

− Found procedural issues with CEQA and APA

− Rejected plaintiff’s request to invalidate LCFS

− Allowed ARB to enforce program at 2013 standards (1.0% CI reduction) while addressing Court’s concerns

− The Board will consider an alternative diesel fuel (ADF) regulation and a re-proposed LCFS in February 2015

9

2015 LCFS Proposed Re-Adoption

Developing a package of proposed amendments to improve the LCFS

• Per Board’s direction on many amendments

• To be responsive to stakeholder feedback

• For clarity and enhancement of the regulation

• Lessons from four years of implementation

• Not to fix a broken program

10

Developing Amendments to Improve LCFS

• Preserve basic flexible framework of current LCFS

• Compliance – Revise post-2015 compliance curves to 10%/2020; include cost-containment mechanism

• Crude/Refinery – Amend some crude oil provisions; recognize GHG reductions at refineries; address low-complexity/low-energy-use refineries

• Enforceability – Streamline fuel pathway analyses; Enhance and clarify enforceability

• Additional – Update indirect land use change values and supporting models; recognize additional electricity credits: mass transit & forklifts

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Potential Compliance Curves

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Fuel Volumes for Diesel Standard(Illustrative - Straight Line)

Biofuel Units12

mos. 2015 2016 2017 2018 2019 2020

Soy Biodieselmm gal 3 5 15 15 13 12 12

Waste Grease Biodieselmm gal 37 40 50 55 60 60 60

Corn Oil Biodieselmm gal 21 40 60 75 90 90 90

Tallow Biodieselmm gal 5 10 10 10 10 10 10

Canola Biodieselmm gal 7 5 5 5 5 5 5

Renewable dieselmm gal 139 180 260 290 320 360 400

Natural Gasmm DGE 130 155 180 205 205 190 120

Renewable Natural Gasmm DGE 17 95 120 155 265 360 480

Electricity (HDV/Rail)1000 MWH 0 0 894 894 894 894 894

Diesel Demandbill. gal 3.7 3.8 3.8 3.9 4.0 4.0 4.1

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Low-CI Biofuels 2016 – 2020(Illustrative)

(70)

(45)

(35)

(15)

(35)

(30)

(75)

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2020 Credits from Low-CI Fuels(Illustrative)

15

LCFS Makes Low-CI Fuels Attractive

• LCFS provides real value for low-CI fuels

• Higher credit value will encourage needed infrastructure to get low-CI fuels to CA

• LCFS will encourage production of low-CI fuels

• LCFS programs along Pacific Coast will encourage additional production of low-CI fuels

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