Ethanol is the Main Biofuel Generating Credits for California’s Low Carbon Fuel Standard

Ethanol is the Main Biofuel Generating Credits for California’s Low Carbon Fuel Standard

**This article was originally published in the AgMRC Renewable Energy Report which can be found here:

The Low Carbon Fuel Standard (LCFS) is a regulatory framework adopted by California to reduce greenhouse gas (GHG) emissions in the state. Renewable fuel alternatives such as ethanol, biodiesel, and renewable diesel contribute to the reduction of greenhouse gas emissions by partly replacing higher carbon petroleum-based fuels.  The LCFS target is to reduce the carbon intensity (CI) of California’s transportation fuels by at least 10 percent by 2020. CI accounts for the carbon dioxide emissions related to the extraction, processing and distribution (life cycle) of gasoline and diesel and their corresponding substitutes. Alternative fuels with lower CI, estimated in terms of grams of CO2 equivalent per Megajoule of energy (gCO2e/MJ), contribute more to accomplish the goal of the program. 

According to California Air Resources Board (CARB), the CI of gasoline and diesel are 100.53 gCO2e/MJ and 102.76 gCO2e/MJ, respectively. In contrast, currently approved pathway CI values for corn ethanol produced in the Midwest (Iowa, Nebraska, Minnesota, and Illinois) range from 85.58 to 59.60 gCO2e/MJ.

The LCFS program requires reductions in the carbon intensity of California’s transportation fuels over time. A declining average CI for the pool of the state’s transportation fuels is employed to reduce GHG emissions. In 2016 the compliance value for gasoline and fuels used as substitutes for gasoline was 96.50 gCO2e/MJ, declining to 95.02 gCO2e/MJ in 2017. In addition, diesel and fuels used as substitute for diesel, had a compliance target of 99.97 gCO2e/MJ in 2016. This value is 98.44 gCO2e/MJ in 2017. The amount of credits or deficits generated by a fuel depends on the fuel CI’s level relative to the annual decreasing mandate average CI and how much of the fuel is used for transportation in California.

The LCFS policy employs a market-based credit trading system in which providers select how to reduce emissions. To comply with the law each year, petroleum importers, refiners, and wholesalers can either produce their own low carbon fuel products or buy LCFS credits from companies that produce and sell lower carbon alternatives. Each LCFS credit represents one metric ton (MT) of carbon dioxide equivalent (CO2e) in GHG reduction. Credits can be sold, banked, or used to help meet a compliance obligation.

The LCFS 2016 Compliance Report published by CARB on May 12, 2017, indicated a 100 percent compliance rate with the regulation during the past year. A total of 9.061 million credits were generated in 2016 compared with 6.760 million deficits generated from high carbon fuels during the same period. There were 224 companies reporting under the LCFS program in 2016, and all of these companies met their 2016 obligation. The 2016 average price for LCFS credits ranged from $122/credit in February 2016 to $75/credit in August 2016.

Based on CARB quarterly data, 2016 total ethanol credits represented 38.8 percent (3.519 million credits) of all 2016 credits. Corn ethanol credits made up 86.6 percent (3.048 million credits) of all 2016 ethanol credits and 33.6 percent of total 2016 credits (see Figure 1).

Nearly a quarter (23.7 percent) of all 2016 credits were generated by renewable diesel (RD). The number of credits generated by RD was equal to 2.150 million credits. RD made from tallow (RD-tallow) and corn oil (RD-CO) generated 15 percent (1.370 million credits) and 5.1 percent (0.464 million credits) of total 2016 credits, correspondingly. RD tallow share of the total 2016 RD credits pool was 63.7 percent (see Figure 1).

The contribution of biodiesel (BD) to LCFS in 2016 was 1.728 million credits or 19.1 percent of all credits. BD made from corn oil (BD-CO) and BD made from used cooking oil (BD-UCO) generated 10.4 percent (0.943 million credits) and 6.0 percent (0.540 million credits), respectively. Most of the BD credits came from BD-CO with 54 percent of all 2016 biodiesel fuel credits.

Overall, ethanol, biodiesel, and renewable diesel credits combined generated 7.397 million credits in 2016 (see Figure 1), with a share of 81.6 percent of all 2016 credits.

Ethanol, particularly corn ethanol, has been key to the performance of the California Low Carbon Fuel Standard program. From 2011 to 2016 the total number of credits generated from all fuels were equal to 25.647 million, with ethanol generating 11.912 million credits or 46.4 percent of total credits and corn ethanol alone generating 9.31 million credits representing 36.3 percent of all credits. Other biofuels with substantial participation in the LCFS program from 2011 to 2016 were renewable diesel and biodiesel with a contribution of 4.913 million (19.2 percent) and 4.460 million (17.4 percent), respectively.

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