A Clean Fuels Policy for the Midwest

January 08, 2020

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(Great Plains Institute) This Initiative is exploring a clean fuels policy, at the state or regional level, as a marketdriven
approach to achieving our economic, energy security, climate, environmental, and public health goals. This white paper presents policy design considerations that are intended to inform further discussion of new and existing clean fuels policies and how they could be tailored to benefit the Midwest. These considerations should not be viewed as an endorsement of any specific piece of legislation. The Midwestern Clean Fuels Initiative stakeholders are committed to continuing to work together to address unanswered questions and to engage additional groups that are not yet at the table.
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A clean fuels policy, also known in some jurisdictions as a low carbon fuel standard or clean fuel standard, is a performance-based incentive program that supports the commercial deployment of fuels with lower lifecycle carbon intensity. A clean fuels policy evaluates all fuels used in the relevant jurisdiction based on lifecycle carbon accounting
and assigns each fuel production method a unique carbon intensity (CI) score that is the complete well-to-wheels carbon equivalent emissions normalized for the energy content of the fuel. For example, a CI score for gasoline or diesel includes emissions from crude oil extraction, transportation, refining, and combustion in a vehicle. A CI score for a biofuel includes emissions from farming, biofuel production, and combustion in a vehicle.

A CI score for electricity includes emissions from production of electricity (including all relevant upstream emissions), sources of electricity, and the efficiency of electric vehicles (EVs).

A well-designed clean fuels policy has numerous positive attributes for the economy and environment:

• Designed to be technology-neutral.
• Compensates any clean fuel or low carbon fuel1 provider that can achieve a lower CI than the policy requires.
• Supports a portfolio of clean fuels and compensates fuel producers based on their actual carbon performance without discriminating against or disproportionately favoring any fuel.
• Encourages a competitive marketplace in clean fuels and offers incentives to support access to the market.
• Supports development of a variety of clean fuel types, including but not limited to biofuels, electricity, and hydrogen.

A clean fuels policy differs from other policies impacting fuels such as the federal Renewable Fuel Standard, which is based on volumes of fuel rather than carbon reductions, and vehicle-based policies like an EV tax credit that does not place requirements on the electricity used in the vehicle.

A well-designed clean fuels policy has many benefits:

• Increased investment in a portfolio of cleaner fuels and subsequent economic benefits.
• Reductions in air pollution and subsequent health benefits.
• Increased energy independence by relying less on imported resources and more on domestic resources.
• Supports market access for clean fuels that are often lower cost than conventional fuels and currently face barriers to entry in the marketplace, which benefits consumers.
• Reduced greenhouse gas (GHG) emissions in the two largest emitting sectors of transportation and electricity as well as in the agricultural sector.

Every state and region is unique in terms of its history, resources, and policy framework and will necessarily take a different approach in supporting clean fuels development.

There are several examples of existing or emerging clean fuels policies in the US and other nations:

• The California LCFS regulation was proposed in 2007, approved in 2009, and went into effect in 2011.
• British Columbia passed an LCFS in 2008.
• The Oregon Clean Fuels Program rulemaking was authorized in 2009 and was fully implemented in 2016.
• Brazil, the European Union, and the United Kingdom have similar policies.
• Clean fuels policies are in development or under consideration in Canada, Colorado, New York, and Washington.

This white paper considers the impacts of a potential clean fuels policy in the Midwest.

Although informed by efforts in other states and nations, this is a truly Midwestern approach.

A REGIONAL APPROACH

The Midwest already has a strong foundation for clean fuels development and will have a head start on other regions in reducing the CI of transportation fuels. The region is home to the largest concentration of biofuel producers in the country and has been more successful than other regions in promoting higher biofuel blends. Additionally,
Midwestern states have already taken policy and administrative actions to support various clean fuels. The Midwestern Clean Fuels Policy Initiative will build on the existing state policy framework. The appendix lists existing policies and regulations in Midwestern states that provide a foundation for a Midwestern clean fuels policy and help
achieve the vision of this initiative.

A Vision for a Clean Fuels Policy for the Midwest

A clean fuels policy, whether adopted at the state level in the Midwest, in other states, or at the regional level, should seek to achieve the following outcomes for the region:

• Contribute to meeting and exceeding existing goals and policies at the state level, including policies to replace petroleum, increase biofuel use, support EV goals, and more fully actualize transportation greenhouse gas reduction goals and policies.
• Support a portfolio of clean fuels, including biofuels, low and zero-carbon electricity for transportation, and other clean fuel options.
• Make the economic prize bigger by expanding the clean fuels market and avoid pitting different clean fuels against each other.
• Create a backstop if federal policy supporting clean fuels is undermined.
• Create broad rural and urban economic development, benefits for communities, consumers, and agriculture, and increased energy security from increased reliance on clean fuels produced in the Midwest.
• Achieve additional GHG reductions through increased renewable content in transportation fuels over time.
• Support existing farmer-led efforts to adopt agricultural practices that benefit soil health and water quality while contributing to GHG reductions.
• Contribute to electricity sector decarbonization, increased use of renewable electricity, and benefits for electricity customers as managed EV charging enables efficient renewable electricity integration and puts downward pressure on electric rates.
• Improve air quality and public health.

Principles for a Midwestern Clean Fuels Policy

The Midwestern Clean Fuels Policy Initiative aims to create a market specifically for regional clean fuel producers that simultaneously delivers environmental and economic benefits. Over an approximately 20-month long process, the Initiative led stakeholder discussion to consider potential costs and benefits of a Midwestern clean fuels policy
being adopted at the state level and coordinated regionally. When developing new policies, the following principles should be considered:

• Design a market-based approach while remaining fuel and technology neutral, relying on a portfolio of clean fuels including biodiesel, ethanol, renewable natural gas, electricity as a transportation fuel, hydrogen, and other renewable and lowcarbon fuels. Design the policy based on the lifecycle assessment (LCA) of fuels.

Lifecycle assessments should be consistent for all fuel types, science- and engineering-based, up to date, incorporate upstream emissions, and reflect differences in vehicle fuel efficiency with different drive trains. The latest Argonne GREET model should be used as a basis for conducting lifecycle assessments.

The Argonne GREET model uses a rigorous process based on the best available science. It is maintained by Argonne National Laboratory, a United States Department of Energy laboratory that has the capacity to keep the model updated.

• Consider regional factors in the Midwest, including the impact of renewable electricity development on the electric grid, current production practices at biofuel facilities, adoption of farming practices that impact soil organic carbon and nitrous oxide emissions, and current and aspirational biofuel blending levels.

• Build on existing state policies rather than replacing those policies. Great progress has been made in the region to develop a mature ethanol and biodiesel industry and a small but growing EV and renewable natural gas sector. Any new policies should build on rather than replace existing state and federal fuel and GHG policies, such as state biofuel blending requirements and incentives, state EV goals, state GHG goals, and the federal Renewable Fuel Standard.

• Reinforce and complement existing efforts by the agricultural sector to increase the adoption of practices that improve soil health and water quality and have the potential to lower the carbon intensity of biofuel production by storing more soil organic carbon and reducing nitrous oxide emissions related to farming. Support methane reduction efforts by supporting increased use of renewable natural gas.

• Recognize emissions reductions at the farm level that contribute to the reduced carbon intensity of fuels.

• While recognizing state autonomy in policy making, states should collaborate and seek to create a uniform regional approach where possible. If possible, states should seek to achieve interoperability and explore credit fungibility with other clean fuels programs, both within and outside the region.

New Report Outlines Clean Fuels Policy for the Midwest (Energy.AgWired.com)

A CLEAN FUELS PROGRAM FOR MINNESOTA (Minnesota Bio-Fuels Association)

In Midwest, ethanol and electric vehicle advocates join forces on clean fuel plan (Energy News Network)

Ethanol and electric vehicle advocates merging on fuel plan (Aberdeen News)

Midwest Low-Carbon Biofuels Standard Pitched (Ethanol Producer Magazine)