BIOFUELS:

Decision day nears for Calif. carbon rule

California air regulators will vote Thursday on a rule that would reduce the average carbon content of transportation fuels by 10 percent within 11 years, a proposal that the ethanol industry is fiercely opposing.

The target of the industry's opposition: the rule's "indirect land-use change" provision aimed at assessing a fuel's "lifecycle" emissions of greenhouse gases.

Indirect land-use changes refer to ripple effects of biofuels' production, such as release of carbon when land is cleared to make up for crops diverted to fuel. The provision takes into account feedstock production's effects on land use elsewhere, particularly on countries vulnerable to deforestation like Brazil and Indonesia.

Critics argue that the science behind such calculations is still evolving. Doing such calculations now, they say, would create uncertainty in the biofuels market and stymie its development. They also say California's Air Resources Board, or ARB, is picking "winners and losers" in the market by assigning emissions values to each type of fuel, including hydrogen fuel cell, plug-in hybrid, and other alternative fuels in addition to ethanol.

While only four varieties of biofuels -- all derived from corn -- have lifecycle emissions higher than those of conventional petroleum in California's analysis, producers of advanced biofuels made from switchgrass, sugarcane and other cellulosic fibers are unhappy, as well.

A letter last week from 12 biofuels producers to California urged leniency. "Securing financing for second-generation biofuels projects in today's economy is challenging enough; but the negative signal sent to potential investors by the enforcement of selective and questionable penalties against biofuels may be insurmountable," they wrote.

Amy Ehlers, industrial and environmental program manager for the Biotechnology Industry Organization, which represents advanced biofuels producers as well as industry majors, said future biofuels would have a much lower lifecycle carbon footprint due to higher yields and increased efficiency in the refining process.

"The worry is, these initial findings that will come out will stunt the growth of a future fuel that has great potential," Ehlers said. "Rules such as these are big indicators to the investment community. We're worried they'll see a rule such as this and if the science basis behind it is altered or comes out to favor different fuels in the future than it had in the past, they'll see inconsistency and potentially get nervous."

Mary Nichols, the ARB's chairwoman, said in an interview last week that she had not heard any convincing arguments in favor of dropping the land-use calculation.

"We might hear some new information that causes us to change our views, but the prevailing view ... is that we have to include calculation, and no one has offered an alternative that they say is better," Nichols said. "The people who oppose it say, 'We just don't know enough and shouldn't do anything,' and we don't think that's acceptable."

Nichols continued, "I know there's some view out there that the ARB is going to weigh the volume of comments or that we will be trumped by political pressure, but that has not been the history of our proceedings, and I don't think it will occur this time.

"No single stakeholder will be totally happy, but that's usually the test of a successful rulemaking."

Federal focus on production

Nichols described the rule as a departure from federal policy, which has so far been focused on targets for biofuels production. "National policy is also moving in the direction of increasing volumes of truly low-carbon biofuels, but it's a biofuels rule," she said. "Our rule is not a biofuels rule. We believe biofuels will do very well under this rule and there will be a lot of them, and we're pleased with that."

U.S. EPA is due in the next few months to update the expansion of the national renewable fuels standard required under a major 2007 energy law. Lobbying has been equally fierce over the indirect land-use change provision in that standard, with 12 farm-state senators urging EPA in a letter last month not to include land-use changes (E&ENews PM, March 16).

Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.) and seven members of the panel weighed in last week, asking the White House Office of Management and Budget to issue a rulemaking notice as quickly as possible and push the land-use debate to the public.

OMB has had four meetings with outside parties on the ethanol issue over the past four weeks, according to the nonprofit journalism organization Center for Public Integrity.

California's ARB says corn ethanol has received large government subsidies and mandates that are not aimed at lowering the carbon content of fuel but at increasing energy security and independence. "Picking a winner and giving it a big subsidy is just not the right way to do it," board member Dan Sperling said earlier this year.

The board is expecting cellulosic ethanol to pick up much of the slack through 2020, with sample scenarios showing the fuel could account for up to 44 percent of fuel-related emissions reductions by 2020. The state sees 30 new biofuels facilities being built in California by then, 18 of them producing cellulosic and six of them corn ethanol.

But investment is lagging, in part due to the current economic slump. The federal Energy Information Administration says cellulosic producers are not likely to meet the existing targets in the federal renewable fuels standard by 2015-17 (E&ENews PM, April 1).

Push for refineries

Supplies will be enough through 2015, after which the fuel standard itself will provide the impetus for the new refineries, Nichols said.

"There's no question there's a need for new facilities to be built," she said. "One of the main motivations for the rule is to encourage those facilities to be built in California. People may not realize this rule doesn't even begin to take effect until 2011, and volumes of low-carbon or second-generation biofuels are likely to be available through sources that exist around the country and world, through 2015. After that, we expect there will have been a significant ramp-up in production."

Environmentalists also say the low-carbon rule will encourage biofuels production, rather than dampen it.

"Regulations, standards and clarity on what the rules are going to be for the next decade is risk mitigation," said Roland Hwang, director of Natural Resources Defense Council's vehicles policy program, at a conference in San Francisco last week. "What California does is going to be critical to the national standard. If there's a lack of faith in what the federal government is going to do, California's low-carbon fuel standard can help pull forward those investments."

Said Ehlers, "We definitely think it'll be used as a blueprint for any kind of federal legislation, and also by other states." Eleven Northeastern states have expressed their intent to set their own low-carbon fuel standard.

But the challenge of meeting government-created demand is real, Hwang conceded. "Low-carbon fuel investments are still dwarfed by investments in conventional and unconventional petroleum fuels, and development of high-carbon fuels threaten to make it virtually impossible to meet climate goals," he said. "It's a very difficult industry to influence, especially when these guys are making quite a bit of money off the current situation."

As for the issue of pre-emption by a federal program, Nichols said she was hoping for an eventual federal standard. The current cap-and-trade bill in the House, by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), would allow California to set a more stringent fuel standard that other states could also follow. "I think all of us are hoping that we can find a common metric and can push toward a national approach, and we certainly will design the rule in such a way that it doesn't penalize companies that sell both in California and elsewhere."

'Playing with fire'

Hwang warned that the ethanol lobby was "playing with fire," citing an anti-low carbon fuel standard letter from intelligence and military officials that one signatory said he was misled into signing (Greenwire, March 25).

"These guys don't play by the rules," he said. "They're forcing a debate, and it's getting increasingly hard to work with them." He expressed confidence that California would stick to its guns: "What you see with the proposal is going to be 98 percent of what gets adopted," he said.

Said Ehlers, "We just want to raise the concerns that we think maybe have not been given due attention at this point. They seem to be pretty far along, but we just want to make sure the issues are raised and people are aware of them."