Fuels Emissions Cap and Low Carbon Fuel Standard Are Key Parts of House Climate Proposal
Yesterday, the House Energy and Commerce Committee proposed essential policies for cleaning up our fuel supply and reducing our dependence on oil. The proposal includes transportation fuels under an economy-wide cap and establishes a complementary, performance-based low carbon fuel standard.
The cap on emissions is crucial to ensuring that we achieve reductions in global warming pollution from the transportation sector. Other policies, such as CAFE and emissions standards, are intensity-based, meaning they reduce emissions per unit of use (e.g. grams CO2e/mile). If fuel use increases due to more driving, total emissions can still increase without a cap. Transportation fuels are responsible for nearly one-third of US global warming pollution, so they must be included in an economy-wide cap if we are going to hit our 2050 emission reduction targets. Including transportation fuels in the cap also increases the size of the allowance trading market and promotes easier access to the most cost-effective reductions first.
Performance standards, such as minimum fuel efficiency requirements for vehicles or a low carbon standard for fuel, are a critical complement to the cap because they drive low-carbon innovation beyond what might occur with a price signal alone. We are largely inelastic consumers of transportation fuel, meaning that our driving distances do not change much, if at all, with small changes in the price of fuel. Under a carbon cap, the price signal at the pump (about 18 cents/gallon at $20/ton of CO2e) will likely be insufficient to change our driving habits, the efficiency of vehicles produced or our choice of cars. Performance standards overcome the market barriers to innovation in the transportation sector.
A low carbon fuel standard, or LCFS, is a full-fuel-cycle emission intensity standard (e.g., grams of CO2-eq/Mbtu of fuels) on the entire mix of transportation fuels sold. Gradually decreasing the intensity standard forces a shift in the fuel pool toward cleaner fuels such as electricity and sustainable biofuels. Since it is technology-neutral, the LCFS encourages greater deployment (by fuel providers) of all low carbon alternatives to petroleum, which powers about 97% of our transportation.
The standard also discourages large, long-lived investments in high-carbon dirty fuels such as tar sands, liquid coal, and oil shale. Since the whole fuel pool must decrease in carbon intensity, adding high-carbon fuels to the mix makes it harder for fuel providers to comply and dirty fuel investments don't hold up to financial scrutiny.
Accurate accounting is an important requirement of the LCFS. It must account for emissions that occur during fuel production both nationally and internationally. These include tar sands development in Canada, where upstream fuel production emissions can be three times that of conventional gasoline. The LCFS must also account for indirect land use change emissions, which occur when US land previously dedicated to food is switched to energy crops and the displaced food is instead grown internationally by cultivating land that previously stored vast amounts of carbon.
By including both fuels in the cap and an LCFS, the American Clean Energy and Security Act of 2009 released yesterday establishes a framework that can dramatically cut global warming pollution from transportation fuels.