Biofuels in a Cap & Trade Context
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  • This talk describes a recently launched research project that builds on multi-stakeholder discussions over the past three years. My recent biofuels policy discussion paper represents an early product of the project.
  • Note that the AEO projections are inaccurate because they count biofuels as having zero transportation sector CO2.
  • BAU projection is without CAFE and RFS; for sketch model, normalize to 2005 level of 1,985 TgCO2/yr
  • Concludes that ethanol from this facility has a GHG intensity of 55 gCO2e/MJ, or 40% lower than gasoline at 92 g/MJ. This ethanol result is 21% lower than the GREET default of 69 g/MJ.

Biofuels in a Cap & Trade Context Biofuels in a Cap & Trade Context Presentation Transcript

  • Biofuels in a Cap & Trade Context John M. DeCicco School of Natural Resources and Environment University of Michigan 17 November 2009
  • Outline
    • Background and motivation
    • Analysis of emissions missed by a cap
    • Toward carbon management for fuels
      • Specifying the point of regulation
      • Tracking uncapped emissions in the supply chain
      • Land protection fund to address leakage
    • Discussion
    • Conclusions
  • Motivation for the work
    • Realization that the pre-existing paradigms for fuels climate policy had serious limitations
      • Cap-and-trade too coarse and diffuse, and missed many emissions of significance
      • Promotional policies (mandates, subsidies) violate principles of both sound environmental management and economics (and have track record of failure)
      • LCA-based fuel regulation faces difficult-to-resolve disputes as well as fundamental doubts about its real-world workability and benefit
    • Stakeholder research identified deficiencies and pitfalls of existing approaches, but also areas of common ground
  • U.S. Fossil CO 2 Emission Projections vs. Climate-Protective Limits
  • Stakeholder Engagement and Research
    • USCAP (U.S. Climate Action Partnership)
      • Involved major industrial firms and NGOs (but not agriculture or primary agribusiness)
      • Private process with consensus-based public face
      • A Call for Action (January 2007)
      • Blueprint for Legislative Action (January 2009)
    • Formal, private consultative process on low-carbon fuels issues, involving:
      • Fuels industry -- both oil and renewable fuels
      • Auto industry -- both domestic and Asian firms
      • NGOs -- EDF and several others active on issue
    • Supplementary private engagement
  • Standard Lifecycle Method for Fuels Analysis
  • System Boundaries as Conventionally Used for Analysis
  • The "Renewability Shortcut"
    • CO 2 from biofuels treated as "carbon neutral" because of its recent uptake in biomass
      • A common assumption in GHG inventories, energy policy, and lifecycle analysis*
      • A commonplace presumption by policymakers and the public
    • This shortcut assumes that the CO 2 reduction implied when substituting biofuel for fossil fuel is completely additional and incurs no leakage
      • Recently flagged as an accounting error in currently defined GHG reporting protocols ( Searchinger et al. Science 326: 527-28, 23 October 2009 )
    *Many fuel LCA models internally tally the CO 2 from biofuel combustion but then automatically net it out by assuming an equal amount of CO 2 uptake.
  • Conventional Views
    • Numerous fuel lifecycle ("full fuel cycle") studies have been done over the years, all using the renewability shortcut
    • It seemed natural to recommend LCA-based policy
      • "Car Talk" Majority Report (1995): "production incentives … in proportion to full-cycle greenhouse gas emissions based on a facility-by-facility audit"
      • DeCicco & Lynd (1997); DeCicco & Mark E. Policy (1998): "Full fuel cycle (FFC) GHG standards or a FFC GHG cap for motor fuels"
    • LCA-based view became accepted paradigm
      • Farrell et al. Science (2006): "Ethanol can contribute to energy and environmental goals"
      • Fuel options assessments leading to Calif. push for LCFS
  • GREET Ethanol Slide
  • Fuel Lifecycle GHG Comparisons Source: near-term estimates from GREET 1.8; Farrell et al. (2006) for ethanol with credit
  • Meanwhile, back at the ranch …
    • Scientists and policy analysts focused on land use issues, forest and grassland protection well understood the importance of carbon stocks
      • Righelato & Spracklen Science (2007): "Carbon mitigation by biofuels or by saving and restoring forests?"
    • Extensive work and debate on best approaches for forest protection, particularly in the tropics
      • Complexity of factors (e.g., Lambin et al. 2001)
      • Role of incentives (e.g., Mollicone et al. 2007); other work on the issue, such as efforts on REDD
  • Ratio of natural land area converted per unit area of biofuel feedstock expansion Source: John Reilly (MIT) presentation at CRC Workshop on Lifecycle Analysis of Biofuels, Argonne National Laboratory, Oct. 21, 2009.
  • The Big Debate on Biofuels and Land-Use Change
    • It was generally recognized that, as for any expansion of agriculture, biofuel feedstock production increases land conversion pressure
      • See, e.g., IEA (2004) Biofuels for Transport report
    • Recent literature has amplified the concern:
      • Searchinger et al. Science 29 Feb 2008 Using cropland for biofuel increases GHG from LUC
      • Fargione et al. Science 29 Feb 2008 Land clearing and biofuel carbon debt
      • Wise et al. Science 29 May 2009 Integrating energy and land use systems for CO 2
    • But, what to do with this understanding?
  • Expanding the Scope of LCA-based Policy
    • "Complete accounting" becomes very expansive
      • Heavy reliance on modeling-based approaches; few had motivation or means for facility-level audits
      • Indirect land-use change not a "facility" issue
      • Land-use change that is indirect from one vantage point is always direct somewhere on the ground
    • Simple enough to call for "full accounting" in regulatory policy
      • California's broad but vaguely stated LCFS guidance was construed to include indirect effects
      • LCA-based requirements inserted into EISA (2007) and became template for federal LCFS proposals
  • EISA Language for Fuel GHG Emissions
    • EISA (2007) §201(1)(H):
    LIFECYCLE GREENHOUSE GAS EMISSIONS.—The term ‘lifecycle greenhouse gas emissions’ means the aggregate quantity of greenhouse gas emissions (including direct emissions and significant indirect emissions such as significant emissions from land use changes), as determined by the Administrator, related to the full fuel lifecycle, including all stages of fuel and feedstock production and distribution, from feedstock generation or extraction through the distribution and delivery and use of the finished fuel to the ultimate consumer, where the mass values for all greenhouse gases are adjusted to account for their relative global warming potential.
  • USCAP Transportation Recommendations
    • Fuel providers tasked with submitting allowances to cover end users' fossil-based CO 2 emissions
    • Complementary measures:
      • Fuel-related GHG performance standards
      • Vehicle-related GHG performance standards
      • Programs to reduce carbon-intensive travel, educate consumers and improve system efficiency
      • Overall transportation sector GHG management policy
    • Measures should account both for leakage and for credible GHG reduction programs in effect elsewhere
  • Low-Carbon Fuel Stakeholder Research
    • Partly developed to supplement USCAP process; also outgrowth of broader ag sector outreach efforts on carbon market issues such as offsets
    • Private, formal consultative process involving:
      • Fuels industry -- both oil and renewable fuels
      • Auto industry -- both domestic and Asian firms
      • NGOs -- EDF and several others active on the issue
    • Understandings (not consensus, which was not sought or achieved) were synthesized in:
      • Reducing GHG Emissions from Transportation Fuel: Principles for Guiding the Development of Accounting Protocols and Public Policies (Ashcroft & DeCicco, EDF, April 2008)
  • Fuels GHG Accounting Principles
    • Scope: significant impacts of complete lifecycle (with qualification for indirect land-use impacts)
    • Physical basis: absolute rather than relative units
    • Empirical basis: toward data-driven accounting
    • Verifiability: auditable and transparent
    • Model validation
    • Explicit identification of uncertainties
    • Consistency in data sources
    • Explicitly specified time frame
    Accounting principles need to be interpreted within a well-defined policy framework because aspects of their implementation are policy dependent.
  • Problem Statement
    • adequately addresses all GHG emissions of concern;
    • is compatible with a cap-and-trade framework; and
    • respects the policy considerations that all key stakeholders bring to the table?
    Can an approach for transportation fuels-climate policy be developed that is consistent with good accounting principles and:
  • Outline
    • Background and motivation
    • Analysis of emissions missed by a cap
    • Toward carbon management for fuels
      • Specifying the point of regulation
      • Tracking uncapped emissions in the supply chain
      • Land protection fund to address leakage
    • Discussion
    • Conclusions
  • U.S. Transportation Sector End-use CO 2 Emissions: Business-As-Usual and Annual Energy Outlook Projections Right axis is normalized to the 2005 emissions level of 1,985 TgCO 2 /yr
  • Table 1
  • Sketch Model for Analyzing Transportation 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 CO 2 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 CO 2 ).  
  • Apparent 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 N 2 O and CO 2 leakage from land-use change.
  • Wide Uncertainties for Actual Biofuels GHG Impacts 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.
  • Summary Estimates of U.S. Transportation-Related GHG Emissions Missed 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 TgCO 2 e in 2020.
  • U.S. Transportation Sector CO 2 Emissions: Plausible Real Impacts vs. EIA AEO Projections
  • Outline
    • Background and motivation
    • Analysis of emissions missed by a cap
    • Toward carbon management for fuels
      • Specifying the point of regulation
      • Tracking uncapped emissions in the supply chain
      • Land protection fund to address leakage
    • Discussion
    • Conclusions
  • Toward Carbon Management for Transportation Fuels
    • As commonly defined, a carbon cap:
      • Covers direct emissions from fossil-derived fuels
      • Would establish measurement-based C-mgmt for the majority of transportation emissions
    • Extending C-mgmt to uncapped sources:
      • Requires addressing direct emissions throughout the supply chain
      • Also requires mechanisms for addressing indirect (induced) emissions including leakage
    • Surprise finding: A management-based paradigm need not entail explicit comparison of fuels.
  • Elements of a Carbon Management Approach
    • Careful specification for inclusion of fuels in cap
      • A GHG emissions cap is mandatory by definition
      • Must account for all direct, "emissions certain" in each capped sector
    • Protocol for tracking uncapped emissions
      • Mandatory or voluntary?
      • Consider spirit of the law: by definition, uncapped sectors are those omitted from mandatory control
    • Addressing indirect emissions (including leakage)
      • An question of what approach is appropriate: attributional versus consequential accounting
    The approach described here is not the same as treating biofuels strictly as carbon offsets.
  • Specifying the Cap for Transportation
    • Point of Regulation ("POR"): must be the point of finished fuel distribution
    • Allowance submission requirements: should reflect "emissions certain" in the sector
    • Explicit crediting for net CO 2 uptake: Fuel and Feedstock Accounting Standards ("FFAS") based on facility-level GHG balances
  • Point of Regulation
    • Economists may say "as upstream as possible," but …
      • Not possible to ascertain net GHG emissions impacts at either refinery input or output ("refinery gate")
      • Biofuels and other fuel components are commonly blended at points farther downstream
    • Point of Finished Fuel Distribution
      • Corresponds to EPA's traditional expansive definition of "refiner" for regulatory purposes
      • This is the point in the supply chain where the final characteristics of fuel distributed to retail outlets is determined
  • Appropriate Legal Definition for POR 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.
  • Correctly Specifying the Cap for Transportation
    • The renewability shortcut misplaces accounting responsibility
      • Tailpipe CO 2 is an "emissions certain" in the sector regardless of the origin of the fuel
      • Restriction to "fossil-based" is too narrow
    • Balancing competitive considerations with ideal carbon accounting suggests that refiners:
      • Report total energy value of all fuel they distribute
      • Hold allowances sufficient to cover carbon content based on conventional fuel energy equivalence
      • Obtain credit against allowance requirements only to extent of fuel or feedstock net uncapped emissions based on supply-chain accounting (described below)
  • Direct CO 2 Emission Factors
  • Example Allowance Calculation for Unrated 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 tCO 2 (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.
  • Fuel and Feedstock Accounting Standards (FFAS)
    • Accounting standards, not performance standards (a reporting protocol rather than a regulation)
    • Voluntary: intended to track uncapped emissions
    • Applies to facilities in the commercially traceable supply chain
      • "Facility" can be a farm, forest, biorefinery or multi-product processing plant
      • Practically speaking, agricultural facilities are likely to be treated at some level of aggregation, such as district or cooperative, but localization is needed to minimize adverse selection problems
  • "Reasonably Attributable" Emissions
    • Attributional analysis
      • system boundaries are restricted to flows physically connected to the product under study*
      • static accounting, using current (e.g., annual) data
    • Consequential analysis
      • boundaries expanded to include all system-wide impacts that occur as a consequence of an action, even if not physically connected*
      • dynamic accounting, including intertemporal effects
    *Gnansounou et al. (2008), review of accounting approaches for biofuels ILUC Businesses will argue forcefully against being held legally accountable for impacts not reasonably attributable to their own actions and which may (or may not) occur in the future.
  • Facility-level carbon balances for tracking GHG emissions in the fuel supply chain
  • Case Study: Illinois River Energy Center
    • 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.
  • Farm GHG Balance
  • Biorefinery GHG balance
  • Allowance Calculation for FFAS Rated E85 Adding the net uncapped emissions credit of 88.8 g/MJ to the direct CO 2 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 CO 2 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 N 2 O emissions from corn growing were 3x as large as the IPCC default. That change alone would raise the allowance requirements to 3,073 tCO 2 e.
  • Addressing Indirect Land-Use Change (ILUC)
    • Any expansion of agricultural or forest products activities creates pressure for land conversion
    • For crop-based biofuels, the effect appears large
      • Its impacts can be viewed as a form of leakage, in which case the adjustments can be substantial
      • It can also be viewed as a "carbon debt," or number of years it takes for a biofuel's displacement of fossil CO 2 to make up for the CO 2 from land-use change
      • But, because it is market mediated, ILUC cannot be directly measured in an attributional manner (unlike direct land-use change by a given producer)
    • Phenomenon is not in dispute, but its magnitude and applicability for comparing fuels is.
  • Expansion is Inevitable
    • Source: Holly Gibbs (Stanford) presentation at CRC Workshop on Lifecycle Analysis of Biofuels, Argonne National Laboratory, Oct. 21, 2009.
  • Some Typical GHG Intensity Comparisons with Impacts of Indirect Land-Use Change (ILUC) *Biofuel direct (tailpipe) emissions omitted by LCA "renewability shortcut" 100 30 " " CARB LCFS rule 170 100 " " Searchinger et al. 73 46 27 " Sugarcane ethanol (CARB) gCO 2 e/MJ 60 ILUC 130 " " EPA scenario (implied) 70 70 72* Corn ethanol 93 21 72 Gasoline TOTAL Upstream Direct
  • ILUC Mitigation: Land Protection Fund
    • ILUC is a macro-level price effect, and so could be counteracted with an "equal and opposite" price signal
    • Existing policy work points to importance of financial incentives to protect tropical forests
      • Developing techniques for monitoring and verifying forest protection efforts
      • REDD strategies can be tied to the carbon market
    • A Land Protection Fund tied to biofuels demand can be used to amplify these efforts
      • Need to avoid risk of substituting for, rather than enhancing, the resources available for REDD
  • ILUC Impacts and Mitigation Costs
  • Funding the Land Protection Fund
    • Carbon market allowance allocation (targeted expansion of international forest carbon offsets proposals already on the table)
    • Mitigation fee on biofuels or feedstocks
    • Surcharge on allowance trades to cover the carbon in petroleum fuels
    • Energy security tax on petroleum fuels
    Shifts a debate about how to regulate biofuels to a debate about who pays for impact mitigation A number of options come to mind:
  • Outline
    • Background and motivation
    • Analysis of emissions missed by a cap
    • Toward carbon management for fuels
      • Specifying the point of regulation
      • Tracking uncapped emissions in the supply chain
      • Land protection fund to address leakage
    • Discussion
    • Conclusions
  • Points of Discussion
    • Summarize and clarify concept
    • Cap itself as driver for GHG-reductions in the transportation sector
    • Holding biofuels competitively harmless vs. conventional fuels: a policy trade-off
    • Approach is silent on RFS, other than replacing need for LCA requirements
    • Approach does not address overseas emissions associated with fossil fuels (such as heavy crudes, tar sands)
    • It entails strictly market-based carbon management in supply chain, without explicitly comparing fuels
    • Questions around use of Land Protection Fund
  • Summary of Concept
    • Specify POR at point of finished fuel distribution, with careful carbon accounting to address all "emissions certain" in the transportation sector.
    • Fuel and feedstock accounting standards (FFAS) for voluntary tracking and crediting of CO 2 uptake and net uncapped emissions in direct supply chain.
    • Land Protection Fund (LPF) to mitigate impacts outside of the direct supply chain, particularly indirect land-use change.
  • Conclusions
    • Emissions missed by cap are significant and comparable in magnitude to reductions sought
    • "Renewability shortcut" causes large problems for GHG accounting and accountability
    • Annual basis carbon ("ABC") accounting tied to a cap provides a better paradigm than LCA
    • A three-part approach offers a sound framework for biofuels climate policy, rather than seeking to use a "one tool does it all" approach of LCA
    • Integrated into cap-and-trade, the result will be a stronger carbon management system for the transportation fuels sector