Clean Fuels Alliance America (Clean Fuels) and California Advanced Biofuels Alliance (CABA)2 Comment on California Low Carbon Fuel Standard (LCFS) Workshop

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March 31, 2023

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(Clean Fuels Alliance America and California Advanced Biofuels Alliance) ... Support for 30%/35% Targets Without Virgin-Oil Credit Cap. We commend CARB staff for maintaining a focus on strengthening the CI reduction targets through 2030. As noted in our prior comments, we continue to support the 30% and 35% CI reduction targets through 2030, with the important caveat that we strongly oppose a cap on virgin oil feedstock-derived credits for either target (as discussed further below). We believe such a cap is not supported by best available data, is contrary to a science- and market-based program like the LCFS and is counterproductive to the overarching goal of reducing greenhouse gas (GHG) emissions as quickly as possible. At a time when California is seeking more carbon reductions, CARB should not be proposing to limit any low carbon feedstocks, especially when such limits are not supported by meaningful data and science and the feedstocks being considered to be capped arbitrarily can provide the decarbonization in the most difficult to electrify transportation sectors California needs to meet its climate objectives.

2045 Target. While we understand CARB’s desire to establish long-term certainty, it is virtually impossible to project at this time and with any certainty the viability of a 90% CI reduction target by 2045. We therefore reserve comment on that proposal and strongly encourage CARB staff to continue working collaboratively with the alternative fuels industry post-2030 to monitor the developments in the national and California fuels markets and revisit this target as we get closer to 2045. With that said, we would also strongly oppose any linkage of a 2045 target to a virgin oil cap.

Self-Adjusting CI Target Mechanism. We support the proposal to establish a self-adjusting mechanism as discussed in the workshop. While a lot of details still need to be developed for implementing such a mechanism, we agree with the proposal to keep the adjustment unidirectional to avoid backsliding and gaming with the CI targets, which would be detrimental to the substantial investments made by the alternative fuels industry.

Regulation of Conventional Intrastate Jet Fuel
While this proposal raises a number of jurisdictional questions, we support subjecting conventional intrastate jet fuel to its own set of CI reduction compliance curve. This would capture the deficits generated through the use of fossil aviation jet fuel used entirely within the state and establish a strong signal to reduce carbon emissions from this sector beyond those achievable through voluntary measures. The proposal would also help firm up credit prices for other alternative fuels in the program, consistent with the overarching objective of strengthening the LCFS market.

Inclusion of Distillers Corn Oil (DCO) as a Virgin Oil Feedstock
We strongly oppose the inclusion of DCO as a virgin oil feedstock; instead, CARB should return DCO to the waste oil category, where it currently resides in the LCFS program, like staff did with choice white grease (CWG) at the February 2023 workshop. No meaningful justification has been provided by CARB for reclassifying either DCO or CWG as a virgin oil feedstock; both feedstocks have been and continue to be treated as waste oils under the federal Renewable Fuel Standard (RFS) and the LCFS. More importantly, neither CARB nor any other stakeholder have provided a science-based justification for reclassifying these feedstocks as virgin oils. To illustrate, neither feedstock has been shown to be associated with significant indirect land use change (ILUC) effects, which is why both USEPA and CARB have treated these as waste oils since the start of the RFS and LCFS programs.

Capping Virgin Oil Feedstock Credits Is Not Based on Market Reality or Sound Science
A review of the February 22nd presentation suggests a misunderstanding of the lipids industry, and that misunderstanding has been informing the proposal to cap virgin oil feedstocks. Slide references are to the February staff presentation6 unless otherwise noted.

Assumption that the LCFS Drives Overall Biomass-Based Diesel Volumes. The proposal to cap virgin oil feedstocks appears to be based on the assumption that the LCFS will grow the national or global demand for biomass-based diesel. But this ignores the reality that it is the federal RFS program that actually drives overall national volumes of biomass-based diesel volumes, and California’s LCFS simply draws the cleanest feedstocks and fuels to meet the state’s market demand. The RFS currently sets the volume of BMBD consumed in the United States.

California’s LCFS incentivizes a subset of that consumption to occur in the state. So, increased BMBD consumption in CA does not directly increase BMBD consumption in the U.S., which is what matters when thinking about acreage expansion.

The BMBD consumption in California would have occurred elsewhere absent the LCFS because it would be needed to comply with the RFS. The feedstock mix would look different without the LCFS because the RFS doesn’t differentiate RIN value according to feedstock, but the gallons would overall remain the same. Therefore, it is unlikely that California’s increased consumption of vegetable oil BBD has encouraged any additional acreage expansion above the RFS.

To illustrate, the 98 million acres of land noted in the bullet on Slide 39 represents about 4.9686 billion bushels of soybeans (assuming 50.7 bushel/acre which is the average yield for the past 3 years in the US). This volume of soybeans represents more than 7 billion gallons of renewable diesel production, which is nearly double California’s entire projected diesel fuel demand through 20307 and clearly cannot be attributed in its entirety to the LCFS.

California’s Demand for Liquid Conventional and Biomass-based Diesel Fuel Will Be Met with a Mix of Waste and Virgin Oil Feedstocks. Slide 39 further appears to assume that the state’s entire 3.63 billion gallon maximum demand for conventional and renewable diesel will be met solely by soy and canola feedstocks. Such an assumption ignores the significant contribution waste oil feedstocks have provided and will continue to provide to BD and RD volumes. To illustrate, in 2022, approximately 83% of the California demand for biomass-based diesel was
derived from waste oil feedstocks.8 Nationally, 53% of US produced biodiesel and renewable diesel was from vegetable oils (47% from soybean oil and the rest from canola oil). Although soybean and canola oil will be a significant and important feedstock for California moving forward, other feedstock supplies will continue to expand and play vital roles in California’s program and the national RFS, as we noted to CARB staff in February (see Attachment A).

Feedstocks for Biodiesel, Renewable Diesel, and Sustainable Aviation Fuel Are Projected to Grow for Various Reasons and Without a Commensurate Increase in Land Conversion.
Similarly, Slide 40 suggests a misunderstanding of the implications of the increased oilseed processing (crushing) capacity. The U.S. oilseed processing industry has responded to demand signals for biodiesel, renewable diesel, and sustainable aviation fuel by investing in capacity to increase supply of soybean oil. Increasing supply thus mitigates the higher prices of soybean oil that induce substitution to other oils. Based on industry announcements, 21 new processing plants or expansions to existing plants are planned to come online by 2026. These facilities would add approximately 650 million bushels of additional crush capacity, equaling nearly one billion gallons of additional soybean oil supplies.

Along with expanding crush capacity, additional supplies of soybean oil will become available due to a continuation of improved soybean yields and increased oil yields from oilseed processers, as well as an overall expansion of domestic oilseed processing capacity. The most recent USDA Oil Crops Yearbook for soybean oil and soybeans shows that average yields in the 2021/22 marketing year were 11.86 pounds per bushel; 3.5 percent above 2010/11 levels.9

That being said, there is considerable annual variation in soybean oil yields due to both environmental and market conditions. Agronomic factors such as growing conditions and the variety of soybean grown in any given year will impact how much oil is contained in the soybean itself. In addition, soybean processors will also vary oil extraction targets depending on the market value of soybean oil. Said another way, soybean processors are more likely to
process the soybean further to extract additional oil from it should the value of soybean oil be relatively high to the value of soybean meal on a per bushel basis.

Further inspection of USDA’s National Agricultural Statistics Services (NASS) crushing statistics shows there is a clear signal showing a long-run upward trend in soybean oil yields. In an assessment on lipid feedstock availability and supply LMC International conducted for Clean Fuels, LMC International found an increase in soybean oil yields over time by fitting a linear trend to annual observations from 1965 to 2020 (see Figure 1). There is no evidence to suggest
that this trend will not continue. Indeed, soybean yields on the order of 56.5 bushels per acre in the 2030/31 timeframe would be expected on historical yield trends. This suggests about 609 million additional bushels in 2030 can be produced from the same acreage used in 2022.

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Lastly, the concern about food price impacts and vegetable oil substitution suggests a fundamental misunderstanding of the impacts of soybean oil on consumer use. It should be noted that only a portion of edible soybean oil is consumed directly by the consumer, and even then, the virgin soybean oil represents only about half of the retail cost13. Most soybean oil is used by food manufacturers and food service. The retail effects of soybean oil on these food items tends to be minimal. Analysis has found that increasing soybean oil for biofuel use has almost no impact on the food at home CPI. This is because the slightly higher retail prices of products containing soybean oil is almost entirely offset by lower protein prices from increased soybean meal that results from more soybean processing14. In other words, the increases in soybean oil use for biofuels has almost no impact on overall food inflation.

Anticipated increased supplies of soybean and other oilseed oils, as noted, as well as imperfect substitution, as evidenced above, are important factors for CARB to consider for a better understanding of the soybean and soybean oil markets, both domestically and internationally.

Suggested Metric for CARB to Monitor
While the discussion in this letter and in our prior comments show the lack of a sound science basis for the proposed virgin oil feedstock cap, we acknowledge and share CARB’s overarching concerns about deforestation and food price impacts. To this end and in response to CARB’s request, we suggest a metric and action trigger for CARB to consider:

(1) Monitor the post-2023 volumes of biodiesel, renewable diesel, and SAF derived from soy and canola feedstocks and consumed in California;
(2) When the volumes in (1) reach 2.0 billion gallons per year15, convene an Expert Working Group (EWG) to provide a third party evaluation of the situation and report back to CARB on its findings, along with any recommendations. Since the virgin oil cap issue is limited to vegetable oil feedstocks for biomass-based diesel and SAF fuels, we suggest the EWG follow a similar process to that used by CARB in the 2010 and subsequent rulemakings but with a narrower scope focused solely on virgin oil feedstocks and closely related areas. We recommend this EWG be comprised of soy/canola/other oilseed industry representatives, academia, and other key stakeholders who operate in this space and can provide expert evaluations on this topic. As an initial matter, the EWG’s task should include an expeditious review of the data underpinning the LCFS’ existing ILUC modeling to incorporate the most current scientific data at that time.

Conclusion
We strongly support a more stringent set of pre- and post-2030 CI reduction targets, in particular the 30% and 35% targets, but without a virgin oil cap. We remain deeply concerned with and are strongly opposed to any CI reduction targets premised on a cap on vegetable oil feedstocks as being unwarranted, not based in sound science, chilling of ongoing and future investments, and counterproductive to California’s climate and carbon neutrality objectives.

We also encourage CARB staff to reduce or eliminate those overly generous credit provisions that have outlived their usefulness. Finally, we would like to endorse and incorporate by reference the comments filed by members and affiliates of Clean Fuels and CABA, including but not limited to ADM and the National Oilseed Processors Association.

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1 Clean Fuels (formerly the National Biodiesel Board) is the U.S. trade association representing the entire supply chain for biodiesel, renewable diesel, and sustainable aviation fuel. The name change reflects our embrace of all the products Clean Fuels members and the U.S. industry are producing, which include biodiesel, renewable diesel, sustainable aviation fuel, and Bioheat® fuel for thermal space heating. Our membership includes over 100 farmers, producers, marketers, distributors, and technology providers, and many are members of environmental organizations supportive of state and local initiatives to achieve a sustainable energy future.

2 California Advanced Biofuels Alliance is a not-for-profit trade association promoting the increased use and production of advanced biofuels in California. CABA represents biomass-based diesel (BMBD) feedstock suppliers, producers, distributors, retailers, and fleets on state and federal legislative and regulatory issues.

3 Biodiesel and Renewable Diesel provided 46% of the LCFS credits in Q1-Q3 2022. See LCFS Quarterly Data Spreadsheet (dated January 31, 2023).

4 Ibid.

5 See Clean Fuels/CABA comments dated December 21, 2022, September 19, 2022, and August 8, 2022.

6 See Slides 36-41,
https://ww2.arb.ca.gov/sites/default/files/classic/fuels/lcfs/lcfs_meetings/LCFSpresentation_02222023.pdf,
visited March 14, 2023.

7 California’s demand for conventional and renewable diesel appears to reach a maximum of about 3.63 billion
diesel gallon equivalents per year in 2023-2024 under the modeling done for the 2022 GHG Reduction Scoping
Plan, AB 32 GHG Inventory Sectors Modeling Data Spreadsheet, Tab “Energy Demand: Transportation,” visited
March 14, 2023.

8 LCFS Quarterly Data Spreadsheet, Jan. 31, 2023, visited March 14, 2023.

9 See USDA Economic Research Service, “Oil crops yearbook,” https://www.ers.usda.gov/data-products/