California’s Proposed LCFS Cap on Soy, Canola Biofuels ‘Far Worse than Anticipated’ Public Comment DEADLINE August 27, 2024

August 20, 2024

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by Ron Kotrba (Biobased Diesel Daily) California Air Resources Board published proposed amendments Aug. 12 to the state’s Low Carbon Fuel Standard, which, if implemented, would set stricter carbon-intensity (CI) targets, impose significant limitations on vegetable-oil feedstocks and add new sustainability requirements for soybean and canola oils. The agency is only providing a 15-day comment period. Comments are due Aug. 27.

Among the biggest changes affecting biofuels stakeholders in the proposed rulemaking, which can be read in its entirety here, are the step change in CI-reduction targets in one year and the 20 percent companywide cap on biofuels from virgin crop oils like soybeans and canola.

CARB is proposing to modify the near-term increase in stringency to a 9 percent CI reduction in 2025 from the 5 percent year-to-year increase included in the initial amendment proposal.

The agency is proposing this increase “in light of the continued growth in low-carbon fuels and in response to stakeholder feedback requesting an increase in stringency to bring deficits and credits into balance,” CARB stated. “The compliance targets between 2025 and 2030 are adjusted in the 15-day modifications package to smooth the curve between the more ambitious 2025 compliance target and the originally proposed 30 percent reduction in 2030,” which CARB proposes maintaining.

CARB stated that the proposed compliance target for 2025 will take effect for first-quarter 2025 reporting if the proposed amendments become effective prior to April 1, which marks the beginning of the first-quarter reporting period.

“Because the glut of renewable diesel has saturated their credit market, they’re going to bump the target by 9 percent in one year,” Dave Collings, group manager at Worley Consulting, told Biobased Diesel Daily®. “If promulgated, I’m expecting some pretty wild short-term changes in the market. It’s a significant development for the LCFS market that was otherwise facing a glut in credits that might have lasted through 2026. The excess credits may have caused high-cost producers of biodiesel and renewable diesel to go out of business, so it is likely viewed as a lifeline to that industry.”

Perhaps the most contentious amendment in the proposal, however, is the notion of capping biobased diesel from virgin soybean and canola oils at 20 percent on a companywide basis annually “to avoid sending a long-term signal for virgin soy or canola oil to serve California demand,” CARB wrote. “California expects that overall diesel demand will decline in the state over the coming decades due to the state’s portfolio of [zero-emission vehicles] and clean-fuel polices. This proposed addition allows for California to displace up to 100 percent of the state’s current fossil diesel demand with cleaner alternative diesel.”

CARB noted that, for companies that already have a certified fuel pathway prior to the effective date of the amendments, and for which the percentage of biobased diesel produced from virgin soybean oil or canola oil was greater than 20 percent of combined reported biodiesel and renewable diesel quantities for that company’s 2023 LCFS reporting, this provision would take effect Jan. 1, 2028, to provide time to adjust feedstock supply contracts as needed.

All other companies would be subject to this requirement upon the effective date of the amended regulation.

So far, associations such as Clean Fuels Alliance America, the American Soybean Association, the National Oilseed Processors Association and the U.S. Canola Association have been silent publicly about the CARB proposals, none of which has issued a press release or publicly available statement at the time of this article’s publication. Biobased Diesel Daily® reached out to each of these stakeholder organizations to get their feedback on these amendments, which stand to have a devastating effect on their constituents and others up and down the value chain.

“This proposal is far worse than anticipated,” Scott Gerlt, the chief economist for the American Soybean Association, told Biobased Diesel Daily®. “The idea of a cap had been floating around for a bit, but CARB staff seemed to shoot it down hard in their April workshop. CARB staff publicly acknowledged that capping agricultural feedstocks would increase petroleum consumption in the state. Instead, CARB staff were proposed feedstock traceability as an alternative, which was still problematic but didn’t outright remove soy from the LCFS program.”

Gerlt said the Aug. 12 proposal not only completely reverses CARB’s April decision, but the agency has also left the traceability requirements in place.

“All of this is to address land conversion, which is not happening in the United States and is already penalized in soy’s CI score based on very outdated data,” he said. “Furthermore, CARB is proposing the option to stop accepting new biodiesel pathways in 2031. This proposal phases soy biodiesel out in the next 10 years due to CI scores, caps soy use in the next few years—or immediately for some biofuel plants—while also requiring dedicated supply chains with traceability in a couple of years. The LCFS is supposed to be based on science, but the proposal doesn’t update the science while adding components that contradict it.”

Moreover, companywide cap is more restrictive than a program total cap, according to Gerlt.

“Not all biomass-based diesel producers use soybean or canola oil—or at least to the 20 percent level,” he said. “These producers will underutilize their portion of the cap. Unless CARB allows companies to trade credits towards the cap, those underutilized portions essentially create voids toward the total.”

As a result, Gerlt said the aggregate total will be less than 20 percent.

“Additionally, not all plants have the same feedstock options,” he added. “Biofuel plants in the Midwest will likely have a more difficult time complying than a facility located in California.”

Clean Fuels Alliance America told its members privately that it is “deeply disappointed” in the proposal.

“If adopted, these changes would impose caps on credits for soy- and canola-based biodiesel and renewable diesel, without sufficient scientific evidence to support such limitations,” the organization stated. “Such restrictions risk unfairly disadvantaging these low-carbon alternatives, which are proven to reduce emissions while supporting sustainable farming and rural economies.”

Clean Fuels went on to share how biodiesel and renewable diesel have significantly contributed to California’s emissions reductions.

“Currently, more than 3 billion pounds of soybean oil and 1.7 billion pounds of canola oil are used in the state, with biomass-based diesel comprising 73 percent of California’s diesel pool,” the organization stated. “Clean Fuels will submit comments strongly urging CARB to reconsider these legally problematic amendments that threaten to reverse progress in emissions reductions and jeopardize the economic viability of renewable fuels.”

NOPA President and CEO Kailee Tkacz Buller told Biobased Diesel Daily® that “NOPA has been clear in our communications to CARB that—based on CARB’s own analysis and market and scientific data—a vegetable-oil cap or limitation is unwarranted. NOPA members have made $6 billion in investments to expand U.S. crush capacity by 30 percent, but a cap of this kind would undercut these efforts and put future investments into lower-carbon feedstocks and advanced biofuels in doubt. NOPA will continue to engage with CARB to make clear the full impact such a limitation would have on both feedstocks and fuels.”

Except for companies that supply waste feedstock, which will benefit from the new amendments, sources agree that virtually every stakeholder up and down the value chain will suffer as a result of CARB’s new rulemaking if implemented as proposed.

As far as the market in general, Gerlt noted that it is already resulting in lower soybean-oil prices and stock-price movements based on the announcement.

“This announcement is significant, and if CARB follows through, it will have long-term impacts that ramp up [over] time,” he said.

Conventional biofuel producers who rely heavily on soy and canola will have limited opportunities in California.

“Not only will they face the cap, but they will also bear traceability costs under the proposal,” Gerlt said. “Limited access to a large market will naturally put these biofuels at a price disadvantage.”

To Tkacz Buller’s point, this announcement will also have “a chilling effect” on future crush-plant plans, Gerlt pointed out.

“The industry expansion has largely been to serve the biofuel market that has been growing from demand in California,” he said.

In addition, farmers are naturally going to be adversely affected too—and not just by lower prices.

Certainly, less demand for soy- and canola-based biofuels will lower the prices that soy and canola farmers receive, but according to Gerlt, those that are providing feedstock for California will eventually be required to have on-farm audits for sustainability verification.

Furthermore, fuel purchasers in California will have fewer options and face higher prices.

“It may take a few years for this to fully kick in,” Gerlt said. “California is hoping to electrify transportation quite quickly thereby avoiding this outcome.”

The adverse effects don’t just stop with LCFS program participants and farmers though.

“Nearly everyone is hurt,” Gerlt reiterated to Biobased Diesel Daily®. “CARB analysis showed that California residents will suffer higher GHG emissions, contrary to the program’s intentions. California fuel consumers will face higher costs, as will biofuel plants. And, oilseed-crush plants will have lower margins, along with farmers.”

Stakeholders are encouraged to submit comments to CARB by Aug. 27. READ MORE

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Excerpt from Politico's California Climate: Farmers are up in arms about a new proposal to limit credits for soybean- and canola-based renewable diesel. It’s aimed at preventing crop-based fuels from converting more natural land into farmland, thus increasing emissions, and at incentivizing fuel made from waste oils. But renewable diesel refiners and Midwestern farmers who have been building out production capacity to meet California’s demand say they feel like CARB is pulling the rug out from underneath them.

“This is going to become a major political issue in the Corn Belt,” said Scott Irwin, an agricultural economist at the University of Illinois who’s warning about the coming “feedstock wars” between agriculture and environmentalists. “The LCFS is going to have to confront this reality.”

CARB has been tinkering with this program — one of its marquee emissions-reduction efforts, which accounts for nearly all of the country’s renewable diesel consumption and has been duplicated by Oregon, Washington and New Mexico — for an unusually long time.

...

The amendments largely satisfied renewable natural gas producers, who capture methane from landfills, dairies and wastewater treatment plants. But environmental justice groups who wanted a cap on the total volume of crop-based biofuels in the program and to eliminate credits for fuels made from dairy manure aren’t satisfied by a proposal to reduce the length of time that dairies can generate credits.

And petroleum producers, who had already been taking out ads blaming the program for the state’s high gas prices, are now against CARB’s proposal to tighten the emissions threshold 9 percent next year, up from 5 percent.

...

But it’s the changes dealing with soybean- and canola-based fuels that are adding new tinder to the LCFS wars. “I think you’re going to see real opposition to this amendment package,” said Matt Herman, head of demand and advocacy for the Iowa Soybean Association.

California is by far and away the biggest consumer of renewable diesel in the country — its diesel fuel mix is already over half renewable. Of that, around 30 percent of the renewable diesel in the program is made from soy and canola — the rest is from other feedstocks like used cooking oil, tallow and other waste oils. So it’s a big market for midwestern crop growers, who are already on edge as the federal Biodiesel Blenders Tax Credit expires at the end of the year and will be replaced by an Inflation Reduction Act credit that rewards fuels based on carbon intensity, likely resulting in lower payments for soy-based fuel relative to used cooking oil, according to Herman.

While the LCFS would still give unlimited credits to other fuels produced with soy and canola, like sustainable aviation fuel, and producers can still sell to other countries and states, farmers are on alert for the potential for other states to adopt California’s amendments. READ MORE

Excerpt from Clean Fuels Alliance America: Clean Fuels Alliance America expressed disappointment in the California Air Resources Board’s (CARB) recently proposed amendments to its low carbon fuel standard (LCFS). If adopted, these changes would impose caps on credits for soy- and canola-based biodiesel and renewable diesel, without sufficient scientific evidence to support such limitations.

By restricting credit generation for these low-carbon alternatives, CARB risks unfairly disadvantaging biodiesel and renewable diesel—proven solutions that reduce emissions today while supporting sustainable farming and rural economies. Limiting biodiesel and renewable diesel in favor of technologies that will not be fully scalable for many years, even by CARB’s own projections, threatens both environmental progress and innovation.

Biodiesel and renewable diesel have significantly contributed to California’s emissions reductions. Based on data from CARB, last year more than 3 billion pounds of soybean oil and 1.7 billion pounds of canola oil were used in the state, with biomass-based diesel (BMBD) now accounting for 73% of California’s diesel pool.

“These proposed amendments impose significant restrictions on vegetable oil feedstocks, hindering the ability of clean fuels to effectively decarbonize the heavy-duty transportation sector. Moreover, they introduce stricter standards for these fuels than those applied to others, including petroleum,” said Jeff Earl, Director of State Governmental Affairs at Clean Fuels. “These changes unjustly penalize biodiesel and renewable diesel—low-carbon fuels that provide immediate health benefits for California.”

Clean Fuels will submit comments strongly urging CARB to reconsider these amendments that threaten to reverse progress in emissions reductions and jeopardize the economic viability of renewable fuels.

“We believe that collaboration and sound science are crucial to advancing environmental goals without compromising the livelihoods of those who have committed to sustainable energy and rural communities,” said Donnell Rehagen, CEO at Clean Fuels. “Without a robust scientific foundation, these vegetable oil caps, and additional sustainability requirements threaten to undo the progress of our industry.” READ MORE

Excerpt from Bloomberg: California’s latest plan for its low-carbon program to slash emissions from tailpipes is getting push back from US lobbying groups for corn ethanol, truck stops and fuel marketers.

“There is no environmental rationale for imposing companywide 20% caps on credits for biomass-based diesel produced from virgin soybean and canola oil,” NATSO and SIGMA write in letter to California regulators
- NATSO is a trade group for US travel centers and truck stops and SIGMA represents fuel marketers
- “Soy- and canola-based renewable diesel gallons will in all likelihood be displaced with petroleum or other higher CI feedstock gallons, rather than new advanced ... READ MORE

Excerpt from DTN Progressive Farmer: In written comments, Growth Energy said the proposed amendments would make it difficult for biofuels companies to generate credits under the LCFS program.

Specifically, Growth Energy said a proposed "sustainability certification" requirement would make it "an unfair and unnecessary double penalty for corn starch bioethanol."

In particular, Growth Energy said the board was "neglecting to consider farm-level carbon reduction practices and technologies" in the proposed amendments.

In addition, the group said it was concerned about the amendments giving the executive officer of the LCFS program "unilateral discretion" on new fuel pathway applications and to modify land-use change penalties.

"The economic impact analysis (EIA) acknowledges potential direct and indirect land use change 'is at least partially (and potentially fully) accounted for by the LUC scores added to crop-derived pathways,'" Growth Energy Senior Vice President of Regulatory Affairs Chris Bliley said in the comments.

"This acknowledgement renders the need for a sustainability certification moot as potential LUC concerns for crop-based feedstocks are addressed."

Growth Energy said in a news release that farmers who produce corn and other crops used to produce biofuels would be required to use climate smart agriculture practices to qualify for the sustainability certification.

"However, those same farmers would still not receive any credit for the emissions-reducing impact of deploying those practices under the LCFS," Growth Energy said in the release.

Bliley said that climate-smart ag practices are "an important component" to ethanol's continued efforts to get to net-zero.

"We urge CARB to recognize these practices and their carbon-reduction potential and allow CSA practices to be considered when determining a pathway's CI," he said in comments.

CLEAN FUELS ALLIANCE AMERICA

Clean Fuels Alliance America said in comments that if California adopted the amendments the changes would impose caps on credits for soy- and canola-based biodiesel and renewable diesel, without sufficient scientific evidence to support such limitations.

"By restricting credit generation for these low-carbon alternatives, CARB risks unfairly disadvantaging biodiesel and renewable diesel--proven solutions that reduce emissions today while supporting sustainable farming and rural economies," CFAA said in a news release.

"Limiting biodiesel and renewable diesel in favor of technologies that will not be fully scalable for many years, even by CARB's own projections, threatens both environmental progress and innovation."

The groups said biodiesel and renewable diesel have "significantly" contributed to California's emissions reductions.

According to information from CARB, last year more than 3 billion pounds of soybean oil and 1.7 billion pounds of canola oil were used in the state, with biomass-based diesel now accounting for 73% of California's diesel pool.

"These proposed amendments impose significant restrictions on vegetable oil feedstocks, hindering the ability of clean fuels to effectively decarbonize the heavy-duty transportation sector. Moreover, they introduce stricter standards for these fuels than those applied to others, including petroleum," said Jeff Earl, director of state governmental affairs at Clean Fuels.

"These changes unjustly penalize biodiesel and renewable diesel--low-carbon fuels that provide immediate health benefits for California."

RENEWABLE FUELS ASSOCIATION

The Renewable Fuels Association submitted comments calling on California regulators to allow the sale of E15 in the state.

"E15 is a critical near-term strategy for decarbonizing liquid fuels, which will continue to dominate transportation in California for years, if not decades, to come," RFA Chief Economist Scott Richman wrote in comments to the California Air Resources Board.

"From a consumer perspective, E15 offers a unique opportunity to lower the cost of gasoline while cutting emissions of greenhouse gases and criteria pollutants."

Richman pointed to a recent study that found E15 could cut 20 cents off the cost of a gallon of gasoline in California, which has the nation's highest average fuel prices. This would equate to total statewide annual savings of $2.7 billion.

The RFA also pushed back on expanded feedstock-tracking requirements for biofuels.

RFA detailed in its comments why the feedstock requirements are too much including the need to maintain boundary coordinates of farms from which feedstocks are sourced, sign attestations about the specific land on which the feedstock was produced and meet comprehensive chain-of-custody obligations.

Instead, Richman wrote in the comments, "if California moves ahead with any feedstock certification program, there should be a provision to designate all U.S.-produced ethanol as already in compliance, so long as aggregate cropland area does not expand beyond a 2007 baseline. This would be consistent with the EPA's approach under the federal Renewable Fuel Standard." READ MORE

Excerpt from Inside EPA: Gov. Gavin Newsom’s (D) Office of Planning & Research (OPR) is pressing the state air board to significantly scale back a proposal to restrict credits under the board’s low-carbon fuel standard (LCFS) for fuel generated from forest biomass and related carbon capture and sequestration (CCS) facilities, exposing a rare policy clash between the two shops. “[W]e have significant concerns regarding the treatment of forest biomass waste and where forest biomass can and cannot be sourced,” states an Aug. 27 letter... READ MORE

Excerpt from Agri-Pulse: The board has scheduled a hearing for Nov. 8 on the proposed LCFS amendments.

In comments to CARB echoed by agriculture and biofuel groups, a major refiner, Phillips 66, told the board that “restricting feedstocks will increase the cost and availability of low carbon fuels, which will hurt California residents.” Phillips 66 recently converted a large petroleum refinery at Rodeo, California, to produce renewable diesel.

NATSO and SIGMA, groups that represent truck stops and other fuel retailers, also told the board there was no environmental justification for the 20% limit on vegetable oils, arguing that it would encourage more use of conventional petroleum-based diesel.

“By restricting credit generation for these low-carbon alternatives, CARB risks undermining the growth of the clean diesel market; limiting biodiesel and renewable diesel in favor of technologies that will not be fully scalable for many years threatens both environmental progress and innovation,” the groups say.

Clean Fuels Alliance America, which represents renewable diesel and biodiesel producers, argued that the cap on soybean and canola oil could increase fuel prices in California.

“Substantially constraining the lowest cost feedstocks for these petroleum diesel replacements can raise the price of diesel fuel, increasing consumer prices of both the fuel and goods transported by trucking,”

The National Oilseed Processors Association also raised the fuel cost concern. “Because vegetable oil is currently one of the most efficient fungible, and cost-effective feedstocks, limiting their use will constrain the supply of renewable diesel in California," the group told CARB.

Groups representing ethanol producers as well as agricultural feedstocks similarly said the cap and sustainability certification requirement are unfounded.

The Renewable Fuels Association, which represents ethanol producers, said that the board proposed the cap for soybean and canola oils after earlier rejecting that concept in favor of sustainability certification.

And then, despite proposing the vegetable cap, “CARB did not remove the sustainability requirements, even though they were intended to accomplish the same objective. Instead, CARB doubled down by making the requirements more onerous,” RFA said.

RFA and other biofuel groups also argued that sustainability requirements for U.S. ag feedstocks are unnecessary.

RFA said “fuel ethanol production has receded since 2018, and the market for ethanol in U.S. road transportation is mature. Moreover, total U.S. cropland has been declining for decades, and the entire increase in U.S. corn production since 2007 has come from rising yields (and switching acreage from other crops), not expanding crop area.”

RFA also said that CARB’s executive officer would be empowered under the board’s plan to reject new pathways for crop-based fuels solely to ensure the state meets targets for zero-emission vehicles. Such authority, combined with the 20% cap on soybean and canola oil, would set “a dangerous precedent” and violate the “LCFS’ commitment to technology neutrality.”

Growth Energy, another ethanol industry group, told the board that adding the sustainability certification requirement to an existing score for the effect of biofuels on land usage “amounts to an unfair and unnecessary double penalty for corn starch bioethanol.”

The American Coalition for Ethanol said the proposed sustainability certification requirement “amounts to an unfair and unnecessary double penalty for corn starch bioethanol,” given that there already is a carbon-intensity score for land-use impacts.

Clean Fuels Alliance America also raised concerns about changes to CARB’s assessment of indirect land-use change (ILUC), arguing that it raised the ILUC score overall without consideration of the differences between the United States and other regions, such as Brazil.

U.S. soybean production has grown to meet biofuel demand “without compromising the supply of soybean oil for other uses or instigating land use change,” the group said.

Some environmentalists have a different view. The Union of Concerned Scientists said the cap on credits for soybean or canola-derived renewable diesel is a good idea but told CARB that more restrictions are needed to avoid creating shortages in biofuels outside of California.

UCS noted that the United States has already increased the import of animal fats and vegetable oils to feedstocks for biofuels.

“Even with limits on the share of vegetable oil used for bio-based diesel, California will continue to draw vastly more than its share from global lipid markets, importing used cooking oil and animal fat from around the world. The consequence is that California’s LCFS policy can’t be replicated by other states or countries.

“There simply isn’t enough used cooking oil to go around, and capping one set of feedstocks with no limit on others can lead to counterproductive feedstock and fuel shuffling and carbon leakage,” UCS said.

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