1. Institute of Transportation Studies University of California, Davis LCFS Prepared for WGA Daniel Sperling UC Davis (and CARB) October 12, 2007

2. 3 Sets of Strategies to Reduce Oil Use and GHG Emissions in Transport Sector Improve Efficiency of Vehicles Reduce Vehicle Use Low Carbon Fuels

3. Many Fuel-Related Strategies to Reduce Oil Use and GHGs, But LCFS Appears to be Most Effective Subsidies and Mandates  Difficult for government to make correct decisions Renewable Fuel Standard  Simpler than LCFS but does not target GHGs Carbon Tax, and Cap and Trade  Not very effective for transport fuels Low Carbon Fuel Standards  Reduces oil use AND greenhouse gases

4. Cap and Trade and Carbon Taxes Aren’t Enough (for transport sector) ELECTRICITY: $25/ton CO 2 price would have big effect  Nuclear + renewable electricity$0.00 per kWh  IGCC+CCS $0.002 per kWh  Natural gas combined cycle$0.01 per kWh  Pulverized coal$0.02 per kWh  Gasoline $0.22 per gallon  Corn ethanol $0.11 to $0.23 per gallon Electricity companies would be responsive to carbon caps and taxes because they have many choices TRANSPORT FUELS: carbon taxes and caps would have little effect  Oil companies would not be responsive because they have few choices  Drivers unresponsive to higher fuel prices (whether due to carbon taxes or caps) Thus, something more effective than cap and trade and carbon taxes is needed to motivate change and innovation with transport fuels

5. Key Features of California LCFS 10% reduction in GHGs by 2020 (with further reductions to follow) “Carbon” intensity measured on lifecycle basis  Global warming intensity, measured in gCO2e/MJ  Includes CO 2 and other GHGs  Adjusted for drivetrain efficiency: Gasoline = 1.0 by definition, Diesel = 0.78, Electricity = 0.20, H 2 = 0.47 (proposed) Point of regulation is oil refineries (and oil importers) Performance standard (no ‘picking winners’) Allows trading and banking of LCFS credits Could be implemented in addition to tax or cap Adopted and now in rule-making. Based on extensive consultation … not just an academic exercise!

6. LCFS Status: Going Global California: LCFS regulations to be in effect 2010 Consideration by other states and provinces: AZ, BC, CT, DE, MD, MA, MN, NH, NJ, NY, ON, OR, NM, RI, VT, WA… Federal regulations: Proposed EPA rule in December 2007 Federal bills: Boxer, Feinstein, Obama, Inslee, Dingell-Boucher, etc. United Kingdom: Renewable Transportation Fuel Obligation (like a RFS) requires GHG monitoring in 2007 Germany: Sustainability requirements for biofuels in 2009 European Union: monitoring in 2009, reductions in 2011 (proposed)

7. Principles Underlying LCFS Create durable framework for orchestrating near and long term transition to low-carbon alternative fuels  Send consistent signals to industry and consumers to reduce GHGs Stimulate technological innovation Use performance standard, with tightening over time Government does not pick winners (or losers!)  Provides industry with flexibility Use lifecycle approach Consistency/compatibility between states, US, EU, Japan, China, others

8. How to Comply? 1. Improve energy efficiency or lower upstream CO 2 emissions (eg, eliminate flaring) 2. Blend in fuels with lower carbon intensity (eg, biofuels) 3. Sell fuels with low carbon intensity (e.g. electricity) 4. Buy credits from other fuel providers

9. Key Clean Alternative Fuel Options for Vehicles Hydrogen Biofuels Plug-in’s FCV Hybrid

10. Based on “Source-to-Wheel” Emissions

11. GHG emissions depend on how fuel is made

12. How to encourage innovation and reduce administrative burden Default Values for Fuels 1. Assign a lifecycle GHG default value to all fuel paths  Default value is conservative (but better than worst case)  Government defines default values 2. Fuel suppliers who beat the default value get extra credit, but must provide documentation

13. Issues to be Resolved Codify LCA methods and compliance tools  Better data, transparency, approved tools Compliance schedule: straight line reduction or accommodate shuffling initially or target advanced technology later Reconcile with RFS, cap and trade, other govt actions Allow offsets such as off-road electrification? How to handle land use changes and other sustainability issues? Oil companies want fair competition with electric utilities (“Capital at risk” vs “ratepayer subsidy”; competitive vs rate-of-return regulation) Electricity companies want …  guaranteed buyers for their LCFS credits (via 3 rd party or govt brokers)  relief from disincentives for selling electricity to EVs (carbon caps and decoupling of profits and revenue)

14. LCFS is Hugely Important Yes, there is uncertainty. Yes, there is some complexity. Yes, more research is needed. But … this is the most important policy initiative in transportation fuels, perhaps ever! It is a durable and flexible framework for guiding investments and the transition to alternative fuels. We need to make this work.

16. Illustrative Defaults (examples) Fuel default  Gasoline, diesel, ethanol, biodiesel, natural gas, electricity Feedstock default  Gasoline: conventional oil, heavy oil, tar sands, coal  Diesel: conventional oil, heavy oil, tar sands, coal  Ethanol: U.S. corn, Brazilian sugar, U.S. switchgrass  Electricity: average mix, marginal energy source Feedstock & processing default  Gasoline: conventional oil, conventional oil with CCS, heavy oil, heavy oil with cogeneration, tar sands with nuclear process heat, etc.  Ethanol: U.S. corn pre-2000 wet mill, U.S. 2004 natural gas dry mill, Brazilian sugar, U.S. switchgrass, etc.  Electricity: coal, nuclear, natural gas, hydropower

17. Specific Concerns of California Utilities  Ensure there are buyers of LCFS credits (besides oil companies)  3 rd party or govt brokers  Find a way to deal with two disincentives for selling electricity to EVs Decoupling (of profits and revenue) Carbon caps  Exempt additional electricity sales from caps and “decoupling”  Allow one-way trading LCFS->AB32

18. Potential for Huge GHG Reductions – Even with Coal Fuel/Feedstock% Change Fuel cells, hydrogen with solar or nuclear-90 to -80 Biofuels from cellulose-90 to -40 Electric vehicles with natural gas-60 to -40 Diesel from petroleum-20 to -10 Natural gas vehicle-20 to -10 Gasoline from conventional oil 0 Fuel cells, hydrogen from coal (with and w/o CCS) -70 to -10 Gasoline from coal (with and w/o CCS) 0 to +100 Measured as GHGs per km, relative to gasoline-powered ICE, full energy cycle. Actual impacts could vary considerably. These estimates reflect a large number of assumptions and should be treated as illustrative. Adapted from GREET, Farrell, and Delucchi

19. One Issue in Implementing LCFS How to Account for Electricity (battery EVs, Plug-in EVs, and E-bikes)? Assign GHG rating based on source of electricity Calculate credits based on number, type, and usage of BEVs, PHEVs, and E-bikes

20. Illustration of default and opt-in apporach

21. LCFS is hybrid of market and regulatory policy Stimulates technological innovation and investment  Current technologies were not developed to reduce carbon intensity Many technologies will compete to lower costs Credit trading minimizes costs.

22. Acknowledgements Co-directors: A. Farrell and D. Sperling S.M. Arons, A.R. Brandt, M.A. Delucchi, A. Eggert, B.K. Haya, J. Hughes, B.M. Jenkins, A.D. Jones, D.M. Kammen, S.R. Kaffka, C.R. Knittel, D.M. Lemoine, E.W. Martin, M.W. Melaina, J.M. Ogden, M. O’Hare, R.J. Plevin, B.T. Turner, R.B. Williams, C. Yang Stakeholders CARB and CEC staff, especially Mike Scheible Research supported by grants from Energy Foundation.

23. The Carbon Challenge: To reach stable carbon levels of 450-550 ppm, world emissions need to decline dramatically – by as much as 90% from projected levels. 18 12 6 0 1990 2050 2110 2170 2230 Baseline 750 550 350 Billion tons CO 2 California has goal of 80% reduction by 2050 (25% by 2020) A transformation of the economy is needed!

24. California (and others) set ambitious targets } 25%