LCFS is a critical climate policy

On Friday, Kate Galbraith over at the NY Times wrote a blog post on a new study purporting to show that a low carbon fuel standard (LCFS) "cannot be efficient." Unfortunately, the authors missed the critical context for an LCFS, which is an economy wide carbon cap, and one has to read through some of the comments on Kate's post to get that. The full picture considered, the new article at best serves as a cautionary note on what could happen if we screw up our carbon cap and LCFS implementation.

As I see it, the study's three main points are: a) an LCFS alone will not necessarily drive down the transportation sector's GHG emissions; b) if the lifecycle GHG accounting is done wrong, it could actively drive up GHG emissions; and c) the GHG emissions reductions achieved under an LCFS may be expensive on a $/ton basis.

As the first comment on Kate's blog points out, the LCFS is not being done on its own but rather in the context of an economy wide carbon cap, where the GHG emissions from fuels are under the cap. This is critical for two reasons. First, it means that GHG emissions cannot go up if people simply drive more with low-carbon fuels then they do with high carbon fuels. California, which is implementing a LCFS as part of its state economy wide policy (AB 32), is setting a requirement of a 10% reduction in the average carbon intensity of transportation fuels. (See here for the latest testimony of NRDC's Roland Hwang on the CA LCFS.) So in theory if driver drove more the 10% more because of some sort of price shift caused by a LCFS, the transportation sector emissions would still go up. However, since emissions from the state's economy are capped, the total emissions will still go down. Of course CA is also moving to aggressively reduce transportation sector emissions by improving the GHG performance of vehicles and encouraging smart growth. And the same basic combined approach is envisions by USCAP, by the Climate Stewardship Act considered last year, and by the Waxman-Markey climate bill introduced last week.

Of course, a LCFS could still drive up GHG emissions if we implement it with incorrect lifecycle GHG accounting. In other words, if we set up the rule to encourage fuels that appear to have lower emissions when in actuality those fuels are responsible for more pollution. This might seem like a no-duh point, but its part of the reason that NRDC and many others have been working so hard to get the lifecycle GHG accounting right in CA and at EPA in the RFS rule. (Here's testimony that I gave last week at a hearing on the RFS before Sen. Carper's EPW subcommittee.)  Getting these rules to include emissions from indirect land-use change is particularly important because emissions from ag and forestry are unlikely to be included under a domestic carbon cap or under international climate agreements for many years to come. This means that an economy-wide cap will not be able to act as a backstop to the LCFS. In other words, an LCFS with an inadequate accounting for emissions from indirect-land-use change could lead to "leakage" of emission from the regulated sectors of the economy to the unregulated sources of land-use emissions. But the bottom line is that CARB, EPA, the Northeast states and all the federal bills proposing a federal LCFS clearly intend to avoid this leakage by including emissions from land-use change.

So as part of the package of policies in which an LCFS is being pursued and the way that the lifecycle GHG emissions are currently being implemented, the policy will almost certainly drive down GHG emissions and cannot drive them up.

This leaves the cost issue, which is actually one of the main reasons to do a LCFS along with an economy-wide carbon cap. Low-carbon fuels are expensive to bring into the market and they take a long time to deploy given the very significant capital inertia we have as a result of all our vehicle and fueling infrastructure. In fact, if the only price signal the market sees is that of a carbon cap, it is highly unlikely that these fuels will be developed and deployed in a timely manner. More likely, we would run through our cheap and fast carbon reductions and then face very high carbon prices around say 2030 as we try to force the economy to change quickly. And who knows if we'll have the political backbone to stick with climate policies if we try to rely on carbon prices alone. I have likened this to approaching a stop light in a speeding car--apply the breaks soon enough you can come to a gradual halt, wait until the last minute to slam on the breaks and you're likely to go through the windshield.  As Jeremy Martin from UCS points out in his thoughtful comment on Kate's post, a LCFS is explicitly a tool to get low-carbon fuels developed and deployed in a sustained, orderly manner so that their costs and carbon reduction costs more generally never have to spike.

(A renewable electric standard fits into the same category of complementary climate policies needed to sustain a supply of readily affordable carbon reduction. Check out NRDC's CAP2.0 initiative to learn more about these types of complementary policies.)