The Low Carbon Fuel Standard (LCFS) can play a major role in reducing greenhouse gas emissions and stimulating improvements in transportation fuel technologies so that California can meet its climate policy goals. In Part 1 of this study we evaluated the technical feasibility of achieving a 10 percent reduction in the carbon intensity (measured in gCO2e/MJ) of transportation fuels in California by 2020. We identified six scenarios based on a variety of different technologies that could meet or exceed this goal, and concluded that the goal was ambitious but attainable. In Part 2, we examine many of the specific policy issues needed to achieve this ambitious target. Our recommendations are based on the best information we were able to gather in the time available, including consultation with many different stakeholders. The recommendations are intended to assist the California Air Resources Board, Energy Commission, and Public Utility Commission, as well as private organizations and individuals, in addressing the many complex issues involved in designing a low carbon fuel standard. Choices about specific policies and calculation of numeric values for use in regulation must, of course, be made by these regulatory agencies. The analysis we present here is only illustrative.

The need to significantly reduce greenhouse gas (GHG) emissions from the transportation sector opens up the possibility that new fuels and new vehicles may become economical and widely used. The introduction of new transportation fuels that do not require petroleum will have a cobenefit: reduced oil imports to the state and the nation. It is important to note that these new fuels will compete on a very uneven playing field: the size, organization, and regulation of these industries are radically different. It is unreasonable to think that these differences will be eliminated by the LCFS. The LCFS should be designed to reduce the barriers and disincentives facing energy companies that might offer low carbon fuels to consumers.

Technological innovation is crucial to the success of the LCFS and to the achievement of California’s climate change goals. At the same time, imposing a new regulatory requirement will cause markets to shift (or rationalize) their existing production and sales so that improvements appear on paper to have been made, when in reality no significant change has occurred. Obviously, this rationalization does not represent the type of innovation needed to support the state’s climate change goals. Implementation of the LCFS must recognize and manage both of these effects, rewarding innovation while also minimizing unproductive “rationalization.” For this reason, we suggest that the LCFS require modest reductions in carbon intensity in the early years, and steeper reductions later as innovations and new investments bring more low carbon transportation fuels to market.

The LCFS should not be seen as a singular policy. It can provide complementary incentives to an economy-wide GHG emission cap, should the state choose to impose one. Implementing the LCFS requirement with a provision for trading and banking of credits will tend to keep costs low. And the LCFS should also be coordinated with other climate change policies. In addition, the LCFS may have implications for broader issues, such as environmental justice and sustainability, and should be implemented with these issues in mind. Considerable increases in the administrative capability of the regulating agencies will be needed in order to successfully implement the LCFS, and this capability should be assisted by continued research support.

One of the most challenging issues in the implementation of the LCFS is the climatic effect of land use change due to expansion of biofuel production. Because food and energy markets are global, all agricultural production contributes to the pressure to clear new land for crops. Recent scientific investigations suggest that enormous amounts of greenhouse gases can be released when lands are converted to more intensive cultivation (and also cause other adverse effects such as reduced biodiversity and changed water flows). These land use effects have been largely ignored in earlier lifecycle greenhouse gas assessments of biofuels. If biofuels are to reduce greenhouse gas emissions relative to fossil-based gasoline and diesel, then biofuels must: i) use advanced production methods (some of which are available now), ii) be derived from feedstocks grown on degraded land, or iii) be produced from wastes or residues. Land use change effects should be included in the LCFS, though cautiously at first, with the understanding that further research may change our understanding of this issue and therefore how it should be regulated.

The LCFS provides a durable framework for reducing the large amount of greenhouse gases, especially CO2, that are emitted from today’s petroleum-based transport fuel system. It will facilitate the introduction of low-carbon fuels and restrain the trend toward investments in more carbon intense transport fuels. These unconventional resources, including heavy oil, tar sands, oil shale and coal, have higher, sometimes much higher, carbon emissions than fuels made from conventional petroleum. The LCFS is a response to this recarbonization of transportation fuels, as well as the many market failures blocking innovation and investments in low-carbon alternatives to petroleum.

Executive Order S-1-07, the Low Carbon Fuel Standard (LCFS) (January 18, 2007), calls for a reduction of at least 10 percent in the carbon intensity of California’s transportation fuels by 2020. It instructed the Secretary of the California Environmental Protection Agency to coordinate activities between the University of California and various state agencies to develop and propose a draft compliance schedule to meet the 2020 Target. This report is the first of two by the University of California in response. This first study assesses the low-carbon fuels options that might be used to meet the proposed standard, and presents a number of scenarios for mixes of fuels that might meet a 5, 10, and 15 percent standard. The second part of the study, to be released one month later, will examine key policy issues associated with the LCFS.

On the basis of a study of a wide range of vehicle fuel options, we find a 10 percent reduction in the carbon intensity of transportation fuels by 2020 attainable, but an ambitious target. With some vehicle and fuel combinations, a reduction of 15 percent may be possible. All of the technical options to reduce GHG emissions from the transportation sector (e.g. biofuel production and electric vehicles) have technical and economic uncertainties that need further evaluation and research, but there are many different options, of which many show great potential to lower the global warming impact of transportation fuels. Many research and development efforts are already underway now to bring these advanced technologies to market. This diversity of low-carbon fuel and vehicle options leads to a simple conclusion that the California Air Resources Board should include the LCFS as an early action measure under AB 32 (Núñez/Pavley), the Global Warming Solutions Act.

The global petroleum system is undergoing an “oil transition,” shifting from conventionally produced petroleum to a suite of substitutes for conventional petroleum (SCPs). This paper describes the Regional Optimization Model for Emissions from Oil Substitutes, or ROMEO, which models this oil transition. ROMEO models the dynamics of the transition to substitutes for oil and the environmental impacts (greenhouse gas (GHG) intensity) of such a transition. It models the global liquid fuel market in an optimization framework. The ROMEO market mechanism operates differently than “perfect foresight” models: it solves each year sequentially, with each year optimized under uncertainty about future prevailing prices or resource quantities.

ROMEO includes more fuel types than models designed for integrated assessments of climate change. ROMEO also includes the differing carbon intensities and costs of production of these fuel types. We use ROMEO to calculate the uncertainty of future costs, emissions, and total fuel production under a number scenarios. We first explore the effects of altering three key input parameters. We then use this flexibility to more formally explore two uncertainties simultaneously: the endowment of conventional petroleum, and future carbon taxes. Results indicate that emissions penalties from production of oil substitutes are on the order of 5-20 GtC over the next 50 years, and that these results are highly sensitive to the endowment of conventional oil and less sensitive to the values of a carbon tax.

This study describes how some biofuels are produced, emphasizing agricultural production systems, and considers what is needed in order to measure and communicate environmental performance, and gives examples of how this might be done. We describe a set of seven uses of a Green Biofuels Index, from a wholly market-driven implementation through a set of increasingly intrusive regulatory approaches. We then present several case studies of specific biofuel production pathways using a lifecycle analysis of the inputs to feedstock production and processing, but excluding market-mediated effects.

We recommend four steps to create markets for green biofuels: 1. Measure the global warming intensity of biofuels. 2. Measure the overall environmental performance of biomass feedstock production. 3. Develop and implement a combined Green Biofuels Index. 4. Research better practices, assessment tools, and assurance methods.

In this paper, we review some of the basic energy balance and climate change impact issues associated with biofuels. For both the basic energy and greenhouse gas balances of producing and using a range of fuels, and for the increasingly debated and important issues of nongreenhouse gas impacts such as land, fertilizer, and water use, we conclude that an improved framework for the analysis and evaluation of biofuels is needed. These new methodologies and data sets are needed on both physical and socioeconomic aspects of the life-cycle of biofuels. We detail some of components that could be used to build this methodology and highlight key areas for future research. We look at the history and potential impacts of building the resource base for biofuel research, as well as at some of the land-use and socioeconomic impacts of different feedstock-to-fuel pathways.

Few integrated analysis models examine significant U.S. transportation greenhouse gas emission reductions within an integratedenergysystem.Ouranalysis, usingabottom-upMARKet ALocation (MARKAL) model, found that stringent systemwide CO2 reduction targets will be required to achieve significant CO2 reductions from the transportation sector. Mitigating transportation emission reductions can result in significant changes in personal vehicle technologies, increases in vehicle fuel efficiency, and decreases in overall transportation fuel use.Weanalyze policy-oriented mitigation strategies and suggest that mitigation policies should be informed by the transitional nature of technology adoptions and the interactions between the mitigation strategies, and the robustness of mitigation strategies to long-term reduction goals, input assumptions, and policy and social factors. More research is needed to help identify robust policies that will achieve the best outcome in the face of uncertainties.

In this paper, we review some of the basic energy balance and climate change impact issues associated with biofuels. For both the basic energy and greenhouse gas balances of producing and using a range of fuels, and for the increasingly debated and important issues of nongreenhouse gas impacts such as land, fertilizer, and water use, we conclude that an improved framework for the analysis and evaluation of biofuels is needed. These new methodologies and data sets are needed on both physical and socioeconomic aspects of the life-cycle of biofuels. We detail some of components that could be used to build this methodology and highlight key areas for future research. We look at the history and potential impacts of building the resource base for biofuel research, as well as at some of the land-use and socioeconomic impacts of different feedstock-to-fuel pathways.

In this paper, we review some of the basic energy balance and climate change impact issues associated with biofuels. For both the basic energy and greenhouse gas balances of producing and using a range of fuels, and for the increasingly debated and important issues of nongreenhouse gas impacts such as land, fertilizer, and water use, we conclude that an improved framework for the analysis and evaluation of biofuels is needed. These new methodologies and data sets are needed on both physical and socioeconomic aspects of the life-cycle of biofuels. We detail some of components that could be used to build this methodology and highlight key areas for future research. We look at the history and potential impacts of building the resource base for biofuel research, as well as at some of the land-use and socioeconomic impacts of different feedstock-to-fuel pathways.

The Low Carbon Fuel Standard (LCFS) can play a major role in reducing greenhouse gas emissions and stimulating improvements in transportation fuel technologies so that California can meet its climate policy goals. In Part 1 of this study we evaluated the technical feasibility of achieving a 10 percent reduction in the carbon intensity (measured in gCO2e/MJ) of transportation fuels in California by 2020. We identified six scenarios based on a variety of different technologies that could meet or exceed this goal, and concluded that the goal was ambitious but attainable. In Part 2, we examine many of the specific policy issues needed to achieve this ambitious target. Our recommendations are based on the best information we were able to gather in the time available, including consultation with many different stakeholders. The recommendations are intended to assist the California Air Resources Board, Energy Commission, and Public Utility Commission, as well as private organizations and individuals, in addressing the many complex issues involved in designing a low carbon fuel standard. Choices about specific policies and calculation of numeric values for use in regulation must, of course, be made by these regulatory agencies. The analysis we present here is only illustrative.