Biofuels in aBiofuels in aCap & Trade Context Cap & Trade Context

John M. DeCiccoJohn M. DeCiccoSchool of Natural Resources and EnvironmentSchool of Natural Resources and Environment

University of MichiganUniversity of Michigan

17 November 200917 November 2009

2

OutlineOutline

1.1. Background and motivationBackground and motivation

2.2. Analysis of emissions missed by a capAnalysis of emissions missed by a cap

3.3. Toward carbon management for fuelsToward carbon management for fuelsa.a. Specifying the point of regulationSpecifying the point of regulationb.b. Tracking uncapped emissions in the supply Tracking uncapped emissions in the supply

chainchainc.c. Land protection fund to address leakageLand protection fund to address leakage

4.4. DiscussionDiscussion

5.5. ConclusionsConclusions

3

Motivation for the workMotivation for the work

Realization that the pre-existing paradigms Realization that the pre-existing paradigms for fuels climate policy had serious limitationsfor fuels climate policy had serious limitations Cap-and-trade too coarse and diffuse, and Cap-and-trade too coarse and diffuse, and

missed many emissions of significancemissed many emissions of significance Promotional policies (mandates, subsidies) Promotional policies (mandates, subsidies)

violate principles of both sound environmental violate principles of both sound environmental management and economics (and have track management and economics (and have track record of failure)record of failure)

LCA-based fuel regulation faces difficult-to-LCA-based fuel regulation faces difficult-to-resolve disputes as well as fundamental doubts resolve disputes as well as fundamental doubts about its real-world workability and benefitabout its real-world workability and benefit

Stakeholder research identified deficiencies Stakeholder research identified deficiencies and pitfalls of existing approaches, but also and pitfalls of existing approaches, but also areas of common groundareas of common ground

U.S. Fossil COU.S. Fossil CO22 Emission Emission Projections vs. Climate-Projections vs. Climate-

Protective LimitsProtective Limits

5

Stakeholder Engagement and Stakeholder Engagement and ResearchResearch

1.1. USCAP (U.S. Climate Action Partnership)USCAP (U.S. Climate Action Partnership)• Involved major industrial firms and NGOs Involved major industrial firms and NGOs

(but not agriculture or primary agribusiness) (but not agriculture or primary agribusiness) • Private process with consensus-based public Private process with consensus-based public

faceface• A Call for ActionA Call for Action (January 2007) (January 2007)• Blueprint for Legislative ActionBlueprint for Legislative Action (January 2009) (January 2009)

2.2. Formal, private consultative process on Formal, private consultative process on low-carbon fuels issues, involving:low-carbon fuels issues, involving:• Fuels industry -- both oil and renewable fuelsFuels industry -- both oil and renewable fuels• Auto industry -- both domestic and Asian firmsAuto industry -- both domestic and Asian firms• NGOs -- EDF and several others active on issueNGOs -- EDF and several others active on issue

3.3. Supplementary private engagementSupplementary private engagement

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Standard Lifecycle Method for Fuels Analysis

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System Boundaries as Conventionally Used for System Boundaries as Conventionally Used for AnalysisAnalysis

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The "Renewability Shortcut"The "Renewability Shortcut"

COCO22 from biofuels treated as "carbon neutral" from biofuels treated as "carbon neutral" because of its recent uptake in biomassbecause of its recent uptake in biomass A common assumption in GHG inventories, A common assumption in GHG inventories,

energy policy, and lifecycle analysis*energy policy, and lifecycle analysis* A commonplace presumption by policymakers A commonplace presumption by policymakers

and the publicand the public

This shortcut assumes that the COThis shortcut assumes that the CO22 reduction reduction implied when substituting biofuel for fossil fuel implied when substituting biofuel for fossil fuel is completely additional and incurs no leakageis completely additional and incurs no leakage Recently flagged as an accounting error in Recently flagged as an accounting error in

currently defined GHG reporting protocols currently defined GHG reporting protocols ((Searchinger Searchinger et al.et al. ScienceScience 326: 527-28, 23 326: 527-28, 23 October 2009October 2009))

*Many fuel LCA models internally tally the CO2 from biofuel combustion but then automatically net it out by assuming an equal amount of CO2 uptake.

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Conventional ViewsConventional Views

Numerous fuel lifecycle ("full fuel cycle") studies Numerous fuel lifecycle ("full fuel cycle") studies have been done over the years, all using the have been done over the years, all using the renewability shortcut renewability shortcut

It seemed natural to recommend LCA-based policyIt seemed natural to recommend LCA-based policy "Car Talk" "Car Talk" Majority ReportMajority Report (1995): (1995): "production "production

incentives … in proportion to full-cycle greenhouse gas incentives … in proportion to full-cycle greenhouse gas emissions based on a facility-by-facility audit" emissions based on a facility-by-facility audit"

DeCicco & Lynd (1997); DeCicco & Mark DeCicco & Lynd (1997); DeCicco & Mark E. Policy E. Policy (1998):(1998): "Full fuel cycle (FFC) GHG standards or a FFC GHG cap "Full fuel cycle (FFC) GHG standards or a FFC GHG cap for motor fuels"for motor fuels"

LCA-based view became accepted paradigmLCA-based view became accepted paradigm Farrell et al. Farrell et al. ScienceScience (2006): (2006): "Ethanol can contribute to "Ethanol can contribute to

energy and environmental goals"energy and environmental goals" Fuel options assessments leading to Calif. push for Fuel options assessments leading to Calif. push for

LCFSLCFS

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GREET Ethanol SlideGREET Ethanol Slide

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Fuel Lifecycle GHG ComparisonsFuel Lifecycle GHG Comparisons

020406080

100120140160

GHG Intensity

gCO2e/MJ

upstream

tailpipe

Source: near-term estimates from GREET 1.8; Farrell et al. (2006) for ethanol with credit

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Meanwhile, back at the ranch …Meanwhile, back at the ranch …

Scientists and policy analysts focused on land Scientists and policy analysts focused on land use issues, forest and grassland protection well use issues, forest and grassland protection well understood the importance of carbon stocksunderstood the importance of carbon stocks Righelato & Spracklen Righelato & Spracklen ScienceScience (2007): (2007):

"Carbon mitigation by biofuels or by saving and "Carbon mitigation by biofuels or by saving and restoring forests?" restoring forests?"

Extensive work and debate on best approaches Extensive work and debate on best approaches for forest protection, particularly in the tropicsfor forest protection, particularly in the tropics Complexity of factors (e.g., Lambin et al. 2001)Complexity of factors (e.g., Lambin et al. 2001) Role of incentives (e.g., Mollicone et al. 2007); Role of incentives (e.g., Mollicone et al. 2007);

other work on the issue, such as efforts on REDD other work on the issue, such as efforts on REDD

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Ratio of natural land area Ratio of natural land area converted per unit area of biofuel converted per unit area of biofuel

feedstock expansionfeedstock expansion

Source: John Reilly (MIT) presentation at CRC Workshop on Lifecycle Analysis of Biofuels, Argonne National Laboratory, Oct. 21, 2009.

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The Big Debate on Biofuels and Land-The Big Debate on Biofuels and Land-Use ChangeUse Change

It was generally recognized that, as for any It was generally recognized that, as for any expansion of agriculture, biofuel feedstock expansion of agriculture, biofuel feedstock production increases land conversion pressure production increases land conversion pressure See, e.g., See, e.g., IEA (2004) IEA (2004) Biofuels for TransportBiofuels for Transport report report

Recent literature has amplified the concern:Recent literature has amplified the concern: Searchinger et al. Searchinger et al. ScienceScience 29 Feb 2008 29 Feb 2008

Using cropland for biofuel increases GHG from Using cropland for biofuel increases GHG from LUCLUC

Fargione et al. Fargione et al. ScienceScience 29 Feb 2008 29 Feb 2008Land clearing and biofuel carbon debtLand clearing and biofuel carbon debt

Wise et al. Wise et al. ScienceScience 29 May 2009 29 May 2009Integrating energy and land use systems for COIntegrating energy and land use systems for CO22

But, what to do with this understanding? But, what to do with this understanding?

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Expanding the Scope of LCA-based Expanding the Scope of LCA-based PolicyPolicy

"Complete accounting" becomes very "Complete accounting" becomes very expansiveexpansive Heavy reliance on modeling-based approaches; few Heavy reliance on modeling-based approaches; few

had motivation or means for facility-level auditshad motivation or means for facility-level audits Indirect land-use change not a "facility" issueIndirect land-use change not a "facility" issue Land-use change that is Land-use change that is indirectindirect from one vantage from one vantage

point is always point is always directdirect somewhere on the ground somewhere on the ground

Simple enough to call for "full accounting" in Simple enough to call for "full accounting" in regulatory policyregulatory policy California's broad but vaguely stated LCFS California's broad but vaguely stated LCFS

guidance was construed to include indirect effectsguidance was construed to include indirect effects LCA-based requirements inserted into EISA (2007) LCA-based requirements inserted into EISA (2007)

and became template for federal LCFS proposalsand became template for federal LCFS proposals

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EISA Language for Fuel GHG EISA Language for Fuel GHG EmissionsEmissions

EISA (2007) §201(1)(H): EISA (2007) §201(1)(H):

LIFECYCLE GREENHOUSE GAS EMISSIONS.—The term LIFECYCLE GREENHOUSE GAS EMISSIONS.—The term ‘lifecycle greenhouse gas emissions’ means the aggregate ‘lifecycle greenhouse gas emissions’ means the aggregate quantity of greenhouse gas emissions (including direct quantity of greenhouse gas emissions (including direct emissions and significant indirect emissions such as significant emissions and significant indirect emissions such as significant emissions from land use changes), as determined by the emissions from land use changes), as determined by the Administrator, related to the full fuel lifecycle, including all Administrator, related to the full fuel lifecycle, including all stages of fuel and feedstock production and distribution, from stages of fuel and feedstock production and distribution, from feedstock generation or extraction through the distribution and feedstock generation or extraction through the distribution and delivery and use of the finished fuel to the ultimate consumer, delivery and use of the finished fuel to the ultimate consumer, where the mass values for all greenhouse gases are adjusted to where the mass values for all greenhouse gases are adjusted to account for their relative global warming potential. account for their relative global warming potential.

1717

USCAP Transportation Recommendations

Fuel providers tasked with submitting allowances to cover end users' fossil-based CO2 emissions

Complementary measures: A. Fuel-related GHG performance standardsB. Vehicle-related GHG performance standardsC. Programs to reduce carbon-intensive travel, educate

consumers and improve system efficiencyD. Overall transportation sector GHG management policy

Measures should account both for leakage and for credible GHG reduction programs in effect elsewhere

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Low-Carbon Fuel Stakeholder Low-Carbon Fuel Stakeholder ResearchResearch

Partly developed to supplement USCAP process; Partly developed to supplement USCAP process; also outgrowth of broader ag sector outreach also outgrowth of broader ag sector outreach efforts on carbon market issues such as offsetsefforts on carbon market issues such as offsets

Private, formal consultative process involving:Private, formal consultative process involving: Fuels industry -- both oil and renewable fuelsFuels industry -- both oil and renewable fuels Auto industry -- both domestic and Asian firmsAuto industry -- both domestic and Asian firms NGOs -- EDF and several others active on the issueNGOs -- EDF and several others active on the issue

Understandings (not consensus, which was not Understandings (not consensus, which was not sought or achieved) were synthesized in: sought or achieved) were synthesized in: Reducing GHG Emissions from Transportation Reducing GHG Emissions from Transportation

Fuel: Fuel: Principles for Guiding the Development of Principles for Guiding the Development of Accounting Protocols and Public PoliciesAccounting Protocols and Public Policies(Ashcroft & DeCicco, EDF, April 2008)(Ashcroft & DeCicco, EDF, April 2008)

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Fuels GHG Accounting PrinciplesFuels GHG Accounting Principles

1.1. Scope: significant impacts of complete lifecycle Scope: significant impacts of complete lifecycle (with qualification for indirect land-use impacts)(with qualification for indirect land-use impacts)

2.2. Physical basis: absolute rather than relative unitsPhysical basis: absolute rather than relative units

3.3. Empirical basis: toward data-driven accountingEmpirical basis: toward data-driven accounting

4.4. Verifiability: auditable and transparentVerifiability: auditable and transparent

5.5. Model validationModel validation

6.6. Explicit identification of uncertaintiesExplicit identification of uncertainties

7.7. Consistency in data sourcesConsistency in data sources

8.8. Explicitly specified time frameExplicitly specified time frame

Accounting principles need to be interpreted Accounting principles need to be interpreted within a well-defined policy framework within a well-defined policy framework because aspects of their implementation are because aspects of their implementation are policy dependent. policy dependent.

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Problem StatementProblem Statement

adequately addresses all GHG emissions of adequately addresses all GHG emissions of concern;concern;

is compatible with a cap-and-trade is compatible with a cap-and-trade framework; andframework; and

respects the policy considerations that all respects the policy considerations that all key stakeholders bring to the table?key stakeholders bring to the table?

Can an approach for transportation fuels-climate policy be Can an approach for transportation fuels-climate policy be developed that is consistent with good accounting principles developed that is consistent with good accounting principles and: and:

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OutlineOutline

1.1. Background and motivationBackground and motivation

2.2. Analysis of emissions missed by a capAnalysis of emissions missed by a cap

3.3. Toward carbon management for fuelsToward carbon management for fuelsa.a. Specifying the point of regulationSpecifying the point of regulationb.b. Tracking uncapped emissions in the supply Tracking uncapped emissions in the supply

chainchainc.c. Land protection fund to address leakageLand protection fund to address leakage

4.4. DiscussionDiscussion

5.5. ConclusionsConclusions

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U.S. Transportation Sector End-use COU.S. Transportation Sector End-use CO22 Emissions: Emissions: Business-As-Usual and Annual Business-As-Usual and Annual

Energy Outlook ProjectionsEnergy Outlook Projections

0

500

1,000

1,500

2,000

2,500

3,000

1990 2000 2010 2020 2030

Tg

CO

2 p

er y

ear

0

20

40

60

80

100

120

140

AEO'09

BAU

2005 LEVEL = 100

Right axis is normalized to the 2005 emissions level of 1,985 TgCO2/yr

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Table 1Table 1

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Sketch Model for Analyzing Sketch Model for Analyzing TransportationTransportation

Sector GHG Emissions Missed by a Cap Sector GHG Emissions Missed by a Cap

Derived from DOE EIA Annual Energy Outlook 2008 and 2009, normalized so that the 2005 level of U.S. transportation sector CO2 emissions = 100.

Business-as-usual (BAU) scenario has neither vehicle efficiency gains nor RFS.

Vehicle efficiency includes CAFE per EISA (prior to California compromise) plus EIA's projected efficiency gains in other transportation modes.

"Apparent emissions" are the levels projected by DOE, incorporating the effect of the RFS and using the renewability shortcut (that is, excluding biogenic CO2).

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Apparent Reductions from BiofuelsApparent Reductions from Biofuels

Apparent reductions from biofuels are the difference between EIA's projections ("Apparent emissions") and the levels projected based on vehicle efficiency only.

These reductions would be fully "real" only if all uncapped biofuel and feedstock related emissions are included and no leakage is involved.

Major uncertainties are involved for N2O and CO2 leakage from land-use change.

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Wide Uncertainties for Actual Biofuels GHG Wide Uncertainties for Actual Biofuels GHG ImpactsImpacts

Lower GHG intensity values assume that the nominal lifecycle carbon intensity requirements of the RFS are met and that real-world impacts are in fact limited to the levels required by the regulation.

Higher GHG intensity values are double the lower values.

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Summary Estimates of U.S. Summary Estimates of U.S. Transportation-Related GHG Emissions Transportation-Related GHG Emissions

Missed by a CapMissed by a Cap

In 2020, for example, missed emissions amount to 17%-22% of the sector's 2005 emissions level, comparable to the relative magnitude of economy-wide reductions proposed for that time frame.

Converted to absolute values, missed emissions range 342-430 TgCO2e in 2020.

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U.S. Transportation Sector COU.S. Transportation Sector CO22 Emissions: Emissions: Plausible Real Impacts vs. EIA AEO Plausible Real Impacts vs. EIA AEO

ProjectionsProjections

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OutlineOutline

1.1. Background and motivationBackground and motivation

2.2. Analysis of emissions missed by a capAnalysis of emissions missed by a cap

3.3. Toward carbon management for fuelsToward carbon management for fuelsa.a. Specifying the point of regulationSpecifying the point of regulationb.b. Tracking uncapped emissions in the supply Tracking uncapped emissions in the supply

chainchainc.c. Land protection fund to address leakageLand protection fund to address leakage

4.4. DiscussionDiscussion

5.5. ConclusionsConclusions

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Toward Carbon Management Toward Carbon Management

for Transportation Fuelsfor Transportation Fuels As commonly defined, a carbon cap: As commonly defined, a carbon cap:

Covers direct emissions from fossil-derived fuelsCovers direct emissions from fossil-derived fuels Would establish measurement-based C-mgmt for Would establish measurement-based C-mgmt for

the majority of transportation emissionsthe majority of transportation emissions

Extending C-mgmt to uncapped sources:Extending C-mgmt to uncapped sources: Requires addressing direct emissions throughout Requires addressing direct emissions throughout

the supply chainthe supply chain Also requires mechanisms for addressing Also requires mechanisms for addressing

indirect (induced) emissions including leakageindirect (induced) emissions including leakage

Surprise finding:Surprise finding: A management-based A management-based paradigm need not entail explicit comparison paradigm need not entail explicit comparison of fuels. of fuels.

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Elements of a Carbon Management Elements of a Carbon Management ApproachApproach

Careful specification for inclusion of fuels in capCareful specification for inclusion of fuels in cap A GHG emissions cap is mandatory by definitionA GHG emissions cap is mandatory by definition Must account for all direct, "emissions certain" in Must account for all direct, "emissions certain" in

each capped sectoreach capped sector

Protocol for tracking uncapped emissionsProtocol for tracking uncapped emissions Mandatory or voluntary? Mandatory or voluntary? Consider spirit of the law: by definition, Consider spirit of the law: by definition, uncappeduncapped

sectors are those omitted from mandatory controlsectors are those omitted from mandatory control

Addressing indirect emissions (including leakage)Addressing indirect emissions (including leakage) An question of what approach is appropriate: An question of what approach is appropriate:

attributionalattributional versusversus consequentialconsequential accounting accounting

The approach described here is not the same as The approach described here is not the same as treating biofuels strictly as carbon offsets.treating biofuels strictly as carbon offsets.

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Specifying the Cap for Specifying the Cap for TransportationTransportation

1.1. Point of Regulation ("POR"):Point of Regulation ("POR"):must be the point of finished fuel distributionmust be the point of finished fuel distribution

2.2. Allowance submission requirements:Allowance submission requirements:should reflect "emissions certain" in the sectorshould reflect "emissions certain" in the sector

3.3. Explicit crediting for net COExplicit crediting for net CO22 uptake: uptake:Fuel and Feedstock Accounting Standards Fuel and Feedstock Accounting Standards ("FFAS") based on facility-level GHG balances("FFAS") based on facility-level GHG balances

33

Point of RegulationPoint of Regulation Economists may say "as upstream as possible,"Economists may say "as upstream as possible,"

but …but … Not possible to ascertain net GHG emissions Not possible to ascertain net GHG emissions

impacts at either refinery input or output ("refinery impacts at either refinery input or output ("refinery gate")gate")

Biofuels and other fuel components are commonly Biofuels and other fuel components are commonly blended at points farther downstreamblended at points farther downstream

Point of Finished Fuel DistributionPoint of Finished Fuel Distribution Corresponds to EPA's traditional expansive Corresponds to EPA's traditional expansive

definition of "refiner" for regulatory purposesdefinition of "refiner" for regulatory purposes This is the point in the supply chain where the final This is the point in the supply chain where the final

characteristics of fuel distributed to retail outlets is characteristics of fuel distributed to retail outlets is determined determined

34

Appropriate Legal Definition for Appropriate Legal Definition for PORPOR

This definition has long been used by EPA for regulating fuel composition, for example, in the Tier 2 sulfur rule and the RFS.

It is often the point where fuel suppliers "break bulk," as it is known in the trade, which can be at a refinery but is often at a blending rack or other terminal facility where blendstocks from bulk carriers (pipelines) are combined with blending components to formulate finished fuels meeting a given specification.

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Correctly Specifying the Cap for Correctly Specifying the Cap for TransportationTransportation

The renewability shortcut misplaces The renewability shortcut misplaces accounting responsibilityaccounting responsibility Tailpipe COTailpipe CO22 is an "emissions certain" in the sector is an "emissions certain" in the sector

regardless of the origin of the fuelregardless of the origin of the fuel Restriction to "fossil-based" is too narrowRestriction to "fossil-based" is too narrow

Balancing competitive considerations with Balancing competitive considerations with ideal carbon accounting suggests that refiners:ideal carbon accounting suggests that refiners: Report total energy value of all fuel they distributeReport total energy value of all fuel they distribute Hold allowances sufficient to cover carbon content Hold allowances sufficient to cover carbon content

based on conventional fuel energy equivalencebased on conventional fuel energy equivalence Obtain credit against allowance requirements only Obtain credit against allowance requirements only

to extent of fuel or feedstock net uncapped to extent of fuel or feedstock net uncapped emissions based on supply-chain accounting emissions based on supply-chain accounting (described below) (described below)

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Direct CODirect CO22 Emission Factors Emission Factors

37

Example Allowance Calculation for Example Allowance Calculation for Unrated E85Unrated E85

Calculation for 1 million gallons of E85 (85% ethanol, 15% gasoline):

By way of comparison, 1 million gallons of gasoline would directly emit 8,498 tCO2 (metric tons of carbon dioxide), which determines a refiner's allowance submission requirements for distributing that fuel.

The lower number of allowances needed for the unrated ethanol reflects only the lower volumetric energy density of ethanol. Carbon emissions for cap accounting purposes are assumed to be the same as those of gasoline on an energy-equivalent basis.

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Fuel and Feedstock Accounting Fuel and Feedstock Accounting StandardsStandards

(FFAS)(FFAS) Accounting standards, not performance Accounting standards, not performance

standards (a reporting protocol rather than a standards (a reporting protocol rather than a regulation)regulation)

Voluntary: intended to track Voluntary: intended to track uncappeduncapped emissions emissions Applies to Applies to facilitiesfacilities in the commercially traceable in the commercially traceable

supply chainsupply chain "Facility" can be a farm, forest, biorefinery or multi-"Facility" can be a farm, forest, biorefinery or multi-

product processing plantproduct processing plant Practically speaking, agricultural facilities are likely Practically speaking, agricultural facilities are likely

to be treated at some level of aggregation, such as to be treated at some level of aggregation, such as district or cooperative, but localization is needed to district or cooperative, but localization is needed to minimize adverse selection problemsminimize adverse selection problems

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"Reasonably Attributable" "Reasonably Attributable" EmissionsEmissions

Attributional analysisAttributional analysis system boundaries are restricted to flows system boundaries are restricted to flows

physically connected to the product under study*physically connected to the product under study* static accounting, using current (e.g., annual) datastatic accounting, using current (e.g., annual) data

Consequential analysisConsequential analysis boundaries expanded to include all system-wide boundaries expanded to include all system-wide

impacts that occur as a consequence of an action, impacts that occur as a consequence of an action, even if not physically connected* even if not physically connected*

dynamic accounting, including intertemporal dynamic accounting, including intertemporal effectseffects

*Gnansounou et al. (2008), review of accounting approaches for biofuels ILUC

Businesses will argue forcefully against being held legally Businesses will argue forcefully against being held legally accountable for impacts not reasonably attributable to their accountable for impacts not reasonably attributable to their own actions and which may (or may not) occur in the future.own actions and which may (or may not) occur in the future.

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Facility-level carbon balances for Facility-level carbon balances for tracking GHG emissions in the fuel tracking GHG emissions in the fuel

supply chainsupply chain

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Case Study: Illinois River Energy Case Study: Illinois River Energy CenterCenter

Mueller, S., et al. 2008. The Global Warming and Land Use Impact of Corn Ethanol Produced at the Illinois River Energy Center. Report for Illinois Corn Marketing Board and Illinois River Energy. Chicago: Energy Resources Center, University of Illinois at Chicago, July.

A well-documented traditional LCA using GREET model, deconstructed here to illustrate how FFAS could be applied.

42

Farm GHG BalanceFarm GHG Balance

43

Biorefinery GHG balanceBiorefinery GHG balance

44

Allowance Calculation for FFAS Rated Allowance Calculation for FFAS Rated E85E85

Adding the net uncapped emissions credit of 88.8 g/MJ to the direct CO2 emissions from fuel combustion of 71.52 g/MJ yields a net credit of 17.25 g/MJ, which enters into the calculation below:

Therefore, a refiner would need to submit only 100 CO2 allowances for this batch of fuel, a large reduction from the 6,167 allowances needed for unrated E85. Note that this value is much smaller than, and not directly comparable to, LCA results, because the FFAS approach needs to address only uncapped emissions.

This illustration entails many LCA defaults as used in the referenced case study (Mueller et al. 2008). Suppose, for example, actual N2O emissions from corn growing were 3x as large as the IPCC default. That change alone would raise the allowance requirements to 3,073 tCO2e.

45

Addressing Indirect Land-Use Change Addressing Indirect Land-Use Change (ILUC)(ILUC)

Any expansion of agricultural or forest products Any expansion of agricultural or forest products activities creates pressure for land conversionactivities creates pressure for land conversion

For crop-based biofuels, the effect appears largeFor crop-based biofuels, the effect appears large Its impacts can be viewed as a form of leakage, in Its impacts can be viewed as a form of leakage, in

which case the adjustments can be substantialwhich case the adjustments can be substantial It can also be viewed as a "carbon debt," or number It can also be viewed as a "carbon debt," or number

of years it takes for a biofuel's displacement of fossil of years it takes for a biofuel's displacement of fossil COCO22 to make up for the CO to make up for the CO22 from land-use change from land-use change

But, because it is market mediated, ILUC cannot be But, because it is market mediated, ILUC cannot be directly measured in an attributional manner directly measured in an attributional manner (unlike direct land-use change by a given producer)(unlike direct land-use change by a given producer)

Phenomenon is not in dispute, but its magnitude Phenomenon is not in dispute, but its magnitude and applicability for comparing fuels is. and applicability for comparing fuels is.

46

Expansion is InevitableExpansion is Inevitable

Source: Holly Gibbs (Stanford) presentation at CRC Workshop on Lifecycle Analysis of Biofuels, Argonne National Laboratory, Oct. 21, 2009.

47

Some Typical GHG Intensity Some Typical GHG Intensity Comparisons with Impacts of Indirect Comparisons with Impacts of Indirect

Land-Use Change (ILUC)Land-Use Change (ILUC)

gCO2e/MJ

Direct Upstream ILUC TOTAL

Gasoline 72 21 93

Corn ethanol 72* 70 70

CARB LCFS rule " " 30 100

EPA scenario (implied) " " 60 130

Searchinger et al. " " 100 170

Sugarcane ethanol (CARB) " 27 46 73

*Biofuel direct (tailpipe) emissions omitted by LCA "renewability shortcut"

48

ILUC Mitigation: Land Protection ILUC Mitigation: Land Protection FundFund

ILUC is a macro-level price effect, and so could ILUC is a macro-level price effect, and so could be counteracted with an "equal and opposite" be counteracted with an "equal and opposite" price signalprice signal

Existing policy work points to importance of Existing policy work points to importance of financial incentives to protect tropical forestsfinancial incentives to protect tropical forests Developing techniques for monitoring and Developing techniques for monitoring and

verifying forest protection effortsverifying forest protection efforts REDD strategies can be tied to the carbon marketREDD strategies can be tied to the carbon market

A Land Protection Fund tied to biofuels A Land Protection Fund tied to biofuels demand can be used to amplify these effortsdemand can be used to amplify these efforts Need to avoid risk of substituting for, rather than Need to avoid risk of substituting for, rather than

enhancing, the resources available for REDDenhancing, the resources available for REDD

49

ILUC Impacts and Mitigation CostsILUC Impacts and Mitigation Costs

50

Funding the Land Protection FundFunding the Land Protection Fund

Carbon market allowance allocationCarbon market allowance allocation(targeted expansion of international forest (targeted expansion of international forest carbon offsets proposals already on the table)carbon offsets proposals already on the table)

Mitigation fee on biofuels or feedstocksMitigation fee on biofuels or feedstocks Surcharge on allowance trades to cover the Surcharge on allowance trades to cover the

carbon in petroleum fuelscarbon in petroleum fuels Energy security tax on petroleum fuelsEnergy security tax on petroleum fuels

Shifts a debate about how to regulate biofuels to Shifts a debate about how to regulate biofuels to a debate about who pays for impact mitigationa debate about who pays for impact mitigation

A number of options come to mind: A number of options come to mind:

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OutlineOutline

1.1. Background and motivationBackground and motivation

2.2. Analysis of emissions missed by a capAnalysis of emissions missed by a cap

3.3. Toward carbon management for fuelsToward carbon management for fuelsa.a. Specifying the point of regulationSpecifying the point of regulationb.b. Tracking uncapped emissions in the supply Tracking uncapped emissions in the supply

chainchainc.c. Land protection fund to address leakageLand protection fund to address leakage

4.4. DiscussionDiscussion

5.5. ConclusionsConclusions

52

Points of DiscussionPoints of Discussion

Summarize and clarify conceptSummarize and clarify concept Cap itself as driver for GHG-reductions in the Cap itself as driver for GHG-reductions in the

transportation sectortransportation sector Holding biofuels competitively harmless vs. Holding biofuels competitively harmless vs.

conventional fuels: a policy trade-offconventional fuels: a policy trade-off Approach is silent on RFS, other than replacing need Approach is silent on RFS, other than replacing need

for LCA requirementsfor LCA requirements Approach does not address overseas emissions Approach does not address overseas emissions

associated with fossil fuels (such as heavy crudes, tar associated with fossil fuels (such as heavy crudes, tar sands)sands)

It entails strictly market-based carbon management in It entails strictly market-based carbon management in supply chain, without explicitly comparing fuelssupply chain, without explicitly comparing fuels

Questions around use of Land Protection FundQuestions around use of Land Protection Fund

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Summary of ConceptSummary of Concept

Specify POR at point of finished fuel distribution, Specify POR at point of finished fuel distribution, with careful carbon accounting to address all with careful carbon accounting to address all "emissions certain" in the transportation sector."emissions certain" in the transportation sector.

Fuel and feedstock accounting standards (FFAS) Fuel and feedstock accounting standards (FFAS) for voluntary tracking and crediting of COfor voluntary tracking and crediting of CO22 uptake and net uncapped emissions in direct uptake and net uncapped emissions in direct supply chain. supply chain.

Land Protection Fund (LPF) to mitigate impacts Land Protection Fund (LPF) to mitigate impacts outside of the direct supply chain, particularly outside of the direct supply chain, particularly indirect land-use change. indirect land-use change.

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ConclusionsConclusions Emissions missed by cap are significant and Emissions missed by cap are significant and

comparable in magnitude to reductions soughtcomparable in magnitude to reductions sought "Renewability shortcut" causes large problems "Renewability shortcut" causes large problems

for GHG accounting and accountabilityfor GHG accounting and accountability Annual basis carbon ("ABC") accounting tied to Annual basis carbon ("ABC") accounting tied to

a cap provides a better paradigm than LCAa cap provides a better paradigm than LCA A three-part approach offers a sound A three-part approach offers a sound

framework for biofuels climate policy, rather framework for biofuels climate policy, rather than seeking to use a "one tool does it all" than seeking to use a "one tool does it all" approach of LCAapproach of LCA

Integrated into cap-and-trade, the result will Integrated into cap-and-trade, the result will be a stronger carbon management system for be a stronger carbon management system for the transportation fuels sectorthe transportation fuels sector