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How does a biofuels mandate compare to a low carbon fuel standard? Which provides most security for investors and which will be best for consumers? During today's OnPoint, Alex Farrell, author of California's Low Carbon Fuel Standard and director of the UC Berkeley Transportation Sustainability Research Center, discusses his state's rule on low carbon fuels and how the federal government should be approaching biofuels. Farrell explains the role he believes California should be playing in federal climate discussions and also discusses the effects of a low carbon fuel standard on U.S. automakers.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Alex Farrell, author of California's Low Carbon Fuel Standard and director of the UC Berkeley Transportation Sustainability Research Center. Alex, thanks for coming back on the show.
Alex Farrell: My pleasure Monica.
Monica Trauzzi: When you are on the show last you said that a successful national approach to biofuels will allow the market to choose which technologies are prevalent and which fuel is most prevalent. Since then ethanol prices have risen 30 percent. How do statistics like that impact the market and the desire to implement more biofuels? Are you at all fearful that this might impact things negatively?
Alex Farrell: No, I'm not fearful that a higher price for ethanol will impact things negatively because, at least as far as the Low Carbon Fuel Standard, because there's no dependence on biofuels or ethanol specifically in the Low Carbon Fuel Standard. And higher prices for one potential solution, such as ethanol, mean that other solutions may have a better opportunity. And this is in fact the reason for relying on the market the way the Low Carbon Fuel Standard does. And also a broad approach about the carbon intensity of the fuels, not about biofuels, because when the markets change the more flexible sort of program allows firms to respond to lower the cost.
Monica Trauzzi: Right, because investment is also very important for these fuels to succeed and that's on the flipside of this discussion. Investors are scared right now because the prices are rising. They don't know if this is a secure investment to make.
Alex Farrell: That is correct. The need for investment in whatever capital and whatever intellectual property to produce and market low carbon fuels is however more secure than an investment that is based simply in a trend for biofuels or a trend for electric vehicles, whatever it might be. So you're quite right that there is uncertainty. But the idea of having a standard that is in place, that is not about a particular technology allows investors to think about how competitive their technologies will be in the face of a hopefully relatively firm demand for low carbon fuels. So they're competing with each other, just like in a normal market, not really worried about the vagaries of changing policies.
Monica Trauzzi: I'll ask you the same question that I pose to every Resources Board chair, Mary Nichols recently. What role should California be playing in federal climate policy discussions? And can the federal policy be a stringent as California's?
Alex Farrell: I hope I give a similar answer. California has an important role. First of all, California has always been, among the other states, a laboratory of democracy. And this laboratory includes trying out new policies and doing things that are regionally specific and regionally or state specific and state appropriate. So we certainly have, I think, a role in doing that. We certainly have a role in trying to capture, for the citizens of California and for industries, the commercial opportunities to develop new technologies and bring them to the market sooner. And to give our consumers, the citizens of the state, the opportunities to, if they would like to reduce their carbon footprint, to be able to do so by having products available. I do think that there are some lessons to be learned at all levels from other levels of government. I'm trying to be neutral here. But not everything translates directly. So a policy that might be very appropriate at the state level we have to think carefully about whether it's also appropriate at the federal level. And I think we've been trying to communicate with policy makers and other researchers about that. Can the federal, i.e. Federal Low Carbon Fuel Standard, be as stringent as the state? I'm sure that the state of California can meet the 10 percent intensity target by 2020 at a reasonable cost, a very low cost. I have not studied the question at a national basis, and so as a research I'm going to not stick my neck out and guess. But maybe if you invite me back I will prepare for this question and I'll have a much better answer.
Monica Trauzzi: OK. Fair enough. On Capitol Hill there are discussions and support for ethanol subsidies and a renewable fuels mandate. What are you hearing from lawmakers? How have your discussion shifted in recent months, about LCFS, about biofuels?
Alex Farrell: So I'm going to give you an answer to a slightly broader question because this transformation I'm about to mention is actually occurring not only in Washington, but also in state capitals and even internationally. And the transformation is this. There is more of an interest in finding an understanding that there are performance attributes, like low carbon, that are important in our fuels. And that renewable fuels or biofuels per se can be a contributor, but they're not as good as actually measuring what we're interested in, which in this case is greenhouse gases and the carbon impact. So I've seen a dramatic shift, especially in Europe, away from volumetric mandates, or I should actually say to a policy that includes both biofuels as support policies and has a performance standard. And many lawmakers are now seeing that there's a great deal of value of this combined approach. And I think it is, for one thing, compared to when I was here last, more people know what I'm talking about when I say low carbon fuel standard.
Monica Trauzzi: Right. There's also a lot of discussion about an energy conference. They're saying it might happen soon. One of the main topics that's going to come up is CAFE. Just how much should we increase vehicle fuel efficiency standards? How does increasing fuel efficiency play into the promotion of cleaner burning fuels and this broader issue of biofuels and a low carbon fuel standard?
Alex Farrell: I'm going to try and give this answer from the climate change perspective overall. And so transportation emissions are an important part of that and there's no silver bullet. That's an overused phrase. And in transportation it's easy to think of three different general strategies. One is better vehicles, a second is better fuels, and third are better ways to do both move people around and to move goods around as well. And they're all quite synergistic, because by reducing the amount of fuel that is required, then any amount of low carbon fuel can make a bigger proportional contribution. So they're quite synergistic I think. And I wouldn't leave out this third element, which is improving our transportation system, so people still have mobility options and it's still convenient and low cost to move goods in the United States, but we also can reduce the greenhouse gases associated with both of those.
Monica Trauzzi: The CEO of Ford has suggested that a gasoline tax would be an effective way to drive the market towards choosing lower carbon fuels. Do agree with that? Do you think that would work?
Alex Farrell: If a tax doesn't differentiate on the metric or the attribute that you want to affect, then this tax is going to be a pretty blunt instrument to change performance in that attribute. So I actually think a gasoline tax, if it was proposed, that was actually based on the carbon content or the greenhouse gas performance of the fuel, could have an interesting and perhaps significant effect on the development of low carbon fuels. But just a plain gas tax that did not differentiate between the carbon intensity of the fuels would have a very small effect.
Monica Trauzzi: What do you think a low carbon fuel standard would mean for U.S. automakers?
Alex Farrell: I think for U.S. automakers it might mean very little change, that there would be very little, in terms of their internal combustion engines. But it might mean the opportunity to more quickly develop markets for vehicles like plug-in hybrid vehicles or all-electric vehicles. And under some ways of implementing a low carbon fuel standard you can imagine that the cost of a consumer who has a plug-in vehicle is going to typically have a natural tendency to buy electricity as a fuel because it's lower cost. And you might imagine that some of the benefit to society gets translated into a financial benefit to the carmaker, because they're the ones who face the big financial burden in developing and then marketing what will, at least at first, be relatively expensive cars. So the actual transformation or the actual effect of a low carbon fuel standard on the automakers might be in the diversity of products that they offer.
Monica Trauzzi: A recent OECD study reported that existing biofuels technologies would not be able to meet global energy needs without compromising food supplies and the environment. So let's talk about some of the negatives of biofuels here. What are they and what's being done to solve the issues?
Alex Farrell: So, I think the most important challenge for biofuels is that as we currently think about biofuels we have one thing in mind, these are fuels that are created essentially from crops are grown on arable land. But those are not the only ways to create biofuels, at least we think that they won't be in the future. And this is the answer to the other part of the question, which is developing technologies that require either very little land or require only what is sometimes called degraded land, and there is some of this degraded land in the U.S. and around the world, or that require almost no land whatsoever. And so the conversion of cellulosic parts of municipal solid waste into fuel is in that latter category. I live in the bay area and all around me are companies and scientists trying to develop technologies that do these very tasks. To turn neither cellulosic material into fuel or things like algae for instance that require almost no land, to make them feasible and cost-effective fuel supplies in the future. So much of the technology is going exactly in the right direction to enable these fuels that will avoid this problem of competing for arable land.
Monica Trauzzi: But these technologies don't exist yet, so is it a mistake to start mandating the use of biofuels if we don't even know if it is going to be feasible to meet the standards that we are trying to meet?
Alex Farrell: Mandating the use of biofuels is definitely a sub-optimal strategy relative to mandating low carbon fuels. And so that's one of the big distinctions between the low carbon fuel standard that we're suggesting in California and we're talking about in Washington as well, and biofuel volume mandates. But the same time, I have to say, the United States and the global agriculture sector has never been asked or required to produce low carbon biofuels. If they are asked, and they are being asked now, we have a very innovative agricultural sector. They can reduce the greenhouse gas impacts of their current fuels with changes, incremental changes to the same technologies. And these, I think, can be implemented in the near term and at relatively low cost. So there are things that can be done in the near term and also technologies that are being developed for the longer term.
Monica Trauzzi: All right. We'll keep watching the issue. Thanks for coming on the show.
Alex Farrell: My pleasure.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
[End of Audio]
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