RFA: Latest Proposal for California LCFS Updates Fundamentally Flawed

October 17, 2024

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(Renewable Fuels Association) Proposed regulations updating California’s Low Carbon Fuel Standard are fundamentally flawed and could significantly restrict the future use of low-carbon ethanol in the state, the Renewable Fuels Association noted in comments submitted late Wednesday to the state’s Air Resources Board (CARB).

The comments, which build on RFA’s previous submission filed in August, underscore that renewable fuel producers and California consumers will suffer if CARB moves ahead with its unnecessary and inexplicable proposal for new “sustainability” requirements and an arbitrary new method for assigning hypothetical land use change penalties.

“If CARB had its thumb on the scale against ethanol before, now they are trying to give themselves the authority to put their whole fist on the scale,” said RFA President and CEO Geoff Cooper. “This proposal is completely disconnected from reality and, if finalized, will very likely result in shortages of low-carbon fuels and higher fuel prices for California consumers.”

CARB says the onerous new sustainability requirements are necessary to mitigate the “rapid expansion of biofuel production and biofuel feedstock demand.” However, the data clearly show that there is no “rapid expansion” in U.S. corn ethanol production and historical growth has been accommodated with existing cropland and higher productivity. Applying the sustainability criteria to U.S. corn ethanol makes no sense in light of the hard evidence documenting the efficiency and sustainability associated with the industry’s growth, according to RFA’s comments.

Moreover, the proposed changes are unworkable for U.S. farmers and ethanol producers, RFA said. The proposal includes overreaching language that appears to extend beyond CARB’s authority, along with unrealistic requirements for commodity traceability. RFA’s Chief Economist Scott Richman writes: “CARB should seriously reconsider such a broad and sweeping mandate that could result in an invalidation of LCFS credits due to an unrelated violation that occurs outside of both a fuel provider’s control and CARB’s jurisdiction.”

RFA also argues that the development and assignment of land use change penalties should be based on scientific data and modeling and must be subject to an appropriate public rulemaking process. The draft regulations provide broad new discretion for the CARB executive officer to unilaterally adjust LUC factors for existing pathways and to assign new LUC factors for feedstock/fuel combinations not included in the current lookup table.

“Given the magnitude of the implications of the LUC provisions, it seems inappropriate and outside of the bounds of California regulatory guidelines for CARB to make unilateral changes to LUC factors without following a well-defined process, including public workshops and a formal rulemaking,” Richman wrote.

Click here for RFA’s comments to the California Air Resources Board. READ MORE

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Excerpt from Bloomberg Law: State officials now say they can’t estimate price increase; Board vote reignites gas price issue ahead of election

The California Air Resources Board is set to approve updated fuel regulations that should lower fuel emissions but are also likely to raise gas prices.

The state regulators will vote Nov. 8 on the rules, known as the Low Carbon Fuel Standards, after several revisions over the last year.

State officials and analysts have estimated the changes could add from 47 cents to 65 cents to the cost of a gallon of gasoline in the near term in the state with the highest average gas prices.

CARB Executive Officer Steven Cliff told reporters Friday that the agency can’t predict how ... READ MORE

Excerpt from Office of Governor Gavin Newsom: Keeping gas prices low & holding Big Oil accountable

Last week, Governor Newsom signed legislation that allows the state to require oil refiners to maintain a minimum inventory of fuel to avoid supply shortages that create higher gasoline prices for consumers and higher profits for the industry. It also authorizes the California Energy Commission to require refiners to plan for resupply during refiner maintenance outages. It will help prevent price spikes that cost Californians upwards of $2 billion last year.

Following gasoline price spikes in 2022, Governor Newsom called for a special session and worked in partnership with the Legislature to sign into law a package of reforms holding Big Oil accountable.

California’s new watchdog found that higher gasoline prices were caused by a suspicious market transaction, refinery maintenance without properly preparing for it, and more.

In January of this year, the watchdog sent Governor Newsom and the legislature a letter outlining specific proposals to reform California’s gasoline spot market, which included a minimum inventory requirement to prevent price spikes due to lack of stable supply.

The state’s gasoline price watchdog also found that, in 2023, gasoline prices spiked largely due to refineries going offline without adequately planning to backfill supplies, which caused refining margins to spike as spot and retail prices jumped — indicating that refinery margins made up the largest proportion of the price spikes between July and September 2023. READ MORE

Excerpt from The Hill: All 12 of the Golden State’s U.S. House members sent a letter on Friday to the California Air resources Board (CARB), urging the agency to delay a decision that they believe would cause undue pain at the pump. The vote is scheduled for Nov. 8, just three days after the national elections.

“State agencies should not be enacting new regulations raising our cost of living by dramatically increasing already-high gas prices,” Rep. Michelle Steel (R), who led the letter, said in a statement.

“CARB must delay their November 8 vote and study the impact their regulations will have on all Californians,” added Steel, who is up for reelection in a tight race against Democrat Derek Tran.

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The proposed amendments to the Low Carbon Fuel Standard center on “increasing the stringency of the program to more aggressively decarbonize fuels.”

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Among the possible changes include incentivizing more production of clean fuels, such as low-carbon hydrogen, as well as reducing methane emissions and integrating biologically sourced methane into the transportation sector.

At the same time, the amendments would also strengthen guardrails on crop-based fuels, to avoid deforestation and other possibly adverse impacts.

But the U.S. House Republicans argued in their letter that implementing more stringent standards “would create a hidden 47 cent per gallon fee on California drivers every time they go to the pump in 2025.”

The writers were citing assessments included in CARB’s September 2023 regulatory impact report, although the agency has since backtracked on these evaluations.

Specifically, the report said that in 2025, the amendments could lead to price hikes in gasoline, diesel and petroleum-based jet fuel by about $0.47, $0.59 and $0.44 per gallon, respectively.

Yet earlier this month, a statement from CARB stressed that these increases were only estimates based on models, noting that they “should not be misconstrued as a prediction of the future credit price nor as a direct impact on prices at the pump.”

However, the letter writers slammed CARB for failing to reissue a regulatory impact analysis, while accusing the agency of misleading members of the public.

“CARB’s new and opaque approach comes as Californians continue to weather gas prices $1.50 per gallon above national averages,” the writers stated.

Stressing that Californians with lower economic means typically shoulder the burden when the state raises costs of living, the writers urged CARB to evaluate how the proposals would impact these populations.

“Californians are already paying the highest gas prices in the nation because of our state’s gas tax,” co-lead writer Rep. David Valadao (R-Calif.) said in a statement.

“It is unacceptable that unelected bureaucrats at CARB are attempting to quietly pass new rules that will raise gas prices even more for Central Valley families,” added Valadao, who is also facing a tight race next week against his Democratic opponent, Rudy Salas, in his agriculture-rich region.

The writers collectively called for “complete transparency” and “a well-defined process for public feedback,” which they described as crucial to maintaining CARB’s regulatory integrity. READ MORE

Excerpt from Los Angeles Times:

California Air Resources Board is set to vote Friday on a measure many say is likely to raise gas prices. Officials say they won’t make a prediction, after initially giving an estimate of 47 cents a gallon.
Some lawmakers and others want the vote delayed until there is a cost estimate of the measure, which is aimed at hastening the transition away from fossil fuels.

California regulators are poised to vote Friday on a measure intended to accelerate the state’s transition away from fossil fuels by imposing tougher carbon-reduction requirements for gasoline and diesel.

California Air Resources Board officials months ago projected that the new standards would mean potentially large price hikes for gasoline. But now they claim they’re unable to make any estimate about the price impact. That has raised predictable ire from the oil industry and Republicans, but some Democrats and environmentalists are also demanding that regulators give straight answers.

State Sen. Melissa Hurtado (D-Sanger) has called for the nonpartisan Legislative Analyst’s Office to review the policy and come up with its own estimate.

“Recent developments and estimates have raised significant concerns about the broader implications of these policies,“ Hurtado said in an Oct. 29 letter to the analyst’s office. She wants “an independent review to ensure transparency and and accountability in the regulatory process.”

On Friday, the air board will vote on tighter carbon-reduction rules that, according to the board’s own projections last year, could raise gasoline prices by up to 47 cents a gallon in 2025, an average of 65 cents a gallon between 2031 and 2035, and as much as $1.80 a gallon by 2040, aside from inflationary costs.

How gasoline prices might increase if the costs of stricter carbon rules were passed on to consumers

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The California Air Resources Board says these "upper bound" projections from 2023 are out of date, but does not intend to issue an update.

Projected extra price per gallon

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Line chart shows the projected increase in the price of gas. In the next two years, the price would rise by about 50 cents, before falling slightly and rising to a $1.83 increase by 2041.

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California Air Resources Board

Los Angeles Times

State air board officials have since backed away from that estimate, saying they’re unable to project costs, even within a range.

CARB Executive Officer Steven Cliff said last month that any estimate, even a possible range of prices, was impossible. At an airline industry event last week, Cliff was asked whether the new rules would increase gasoline prices. “I don’t expect them to,” he told reporters.

CARB’s stance on the price issue has now itself become an issue, with Republicans in both the state Capitol and the state’s GOP delegation in Washington calling for a delay in Friday’s vote until the cost issue is resolved.

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At issue Friday is a vote to amend a CARB program called Low Carbon Fuel Standard, or LCFS. Created in 2009 under Gov. Arnold Schwarzenegger, it aims to push California’s fuel supply away from gasoline toward biodiesel, hydrogen, electricity and other alternative fuels.

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The program uses a carbon-trading market to achieve its goals. Basically, it works this way: The state sets limits on the carbon intensity of fuels. Producers of lower-intensity fuels such as renewable diesel earn credits from the state. The state issues deficits to producers of higher intensity fuels such as gasoline and diesel. Producers with an imbalance of deficits must buy credits from alternative fuel makers.

Biofuel producers can keep the credit income for themselves, while gasoline and diesel makers usually pass extra costs through to consumers. Prices at the pump rise and fall with global oil markets, but state taxes, environmental fees and these pass-through costs add to the total price. According to AAA, Californians typically face the second-highest gasoline prices in the U.S., topped only by Hawaii.

Amendments to the carbon rules to be voted on Friday would stiffen those carbon limits over time, meaning more expense for deficit holders. What CARB is vague about is how much of that expense will fall on gasoline and diesel customers. The state’s energy commission reports the pass-through cost to consumers currently amounts to 8 to 10 cents per gallon.

The original CARB projections assume that oil refineries will pass through their carbon reduction costs to consumers. CARB chose an “upper bound” maximum to project a worst-case scenario: 47 cents a gallon next year rising to $1.80 by 2040.

Those worst-case costs might be even higher. Danny Cullenward — a climate economist in San Francisco who also serves as a senior fellow at the Kleinman Center for Energy Policy at the University of Pennsylvania — estimated the 2025 cost could be as high as 65 cents a gallon. Using CARB’s formula, he said, he updated the numbers to account for inflation and changes in CARB’s proposed amendments since the original report was published.

Cullenward, who also serves as vice chair of California’s Independent Emissions Market Advisory Committee, doesn’t expect that maximum to be reached, but he points out that CARB is refusing to even discuss a range of possible price hikes. READ MORE

Excerpt from Aemetis: Greenhouse Gas Reduction Goals Improve Health and the Environment in California While Supporting New Investment in Renewable Energy -- Aemetis, Inc. (NASDAQ: AMTX), a renewable natural gas and renewable fuels company focused on low and negative carbon intensity products, today announced strong support for the updated Low Carbon Fuel Standard (“LCFS”) proposal and strongly urges its adoption by the California Air Resources Board (“CARB”) at its meeting on November 8, 2024.

“CARB has shown that the LCFS is a highly effective program to reduce greenhouse gas emissions and improve air quality in California,” stated Eric McAfee, Chairman and CEO of Aemetis. “We look forward to the adoption of 20 years of new LCFS goals which support the decarbonization of transportation in California while also generating new jobs and billions of dollars of investment. Working together, CARB, unions, agriculture, industry, and impacted communities can strengthen the LCFS and create positive outcomes for California’s citizens and the state’s environment. We applaud CARB’s staff for their work and urge the Board to quickly adopt the updated LCFS,” added McAfee.

The updated LCFS supports CARB’s goals for 2045, which are expected to improve air quality for disadvantaged communities located near air pollution emissions sources, reduce greenhouse gas emissions by 85%, create more than 4 million jobs, and save Californians billions of dollars in health costs associated with pollution.

About Aemetis

Headquartered in Cupertino, California, Aemetis is a renewable natural gas, renewable fuel and biochemicals company focused on the operation, acquisition, development, and commercialization of innovative technologies that replace petroleum-based products and reduce greenhouse gas emissions. Founded in 2006, Aemetis is operating and actively expanding a California biogas digester network and pipeline system to convert dairy waste gas into Renewable Natural Gas. Aemetis owns and operates a 65 million gallon per year ethanol production facility in California’s Central Valley near Modesto that supplies about 80 dairies with animal feed. Aemetis owns and operates a 60 million gallon per year production facility on the East Coast of India producing high quality distilled biodiesel and refined glycerin for customers in India and Europe. Aemetis is developing a sustainable aviation fuel (SAF) and renewable diesel fuel biorefinery in California to utilize renewable hydrogen, hydroelectric power, and renewable oils to produce low carbon intensity renewable jet and diesel fuel. For additional information about Aemetis, please visit www.aemetis.com. READ MORE

Excerpt from Sacramento Bee: Roughly 80% of every cent the LCFS passes onto consumers at the pump in California goes to a booming industry for biofuels, which are derived from plant and animal waste. They have been considered a lower-carbon transition fuel on the path to zero-emission sources.

California’s LCFS drove a tenfold increase in national production of renewable diesel, a soybean-based fuel chemically similar to traditional fossil diesel. National production surved from 295 million gallons in 2013 to 2.88 billion last year — California consumes over 95% of it.

Two in-state refineries, Marathon Martinez and Phillips 66 Rodeo, have switched to renewable diesel. Last year, the fuel source accounted for most of the diesel consumed in the state for the first time.

Yet most of the production comes from out of state, in Texas and Louisiana, or from abroad. In a single month last year, California imported 67 million gallons, mainly from Singapore.

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Many supported an alternative proposal by CARB’s Environmental Justice Advisory Committee to cap renewable diesel credits and refocus on electric transportation, a measure that agency staff dismissed.

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Another concern is the LCFS’s emphasis on highly lucrative methane-based biofuels, which incentivizes dairy farms to capture cow methane — a potent greenhouse gas.

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Biofuels companies say they are producing a rapid and practical solution to reduce emissions and air pollution in the state. In a statement, the California Advanced Biofuels Alliance said its industry reduces emissions by up to 80% compared to conventional gasoline and diesel. “CABA believes biofuels are an essential tool, offering both immediate and scalable environmental benefits while maintaining affordability for consumers,” said the industry group’s executive director Carlos Gutierrez in a statement.

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Critics like Jeremy Martin, a senior researcher with the Union of Concerned Scientists, warned that renewable diesel production may soon generate more greenhouse gasses than the industry displaces. “California should modernize the LCFS to align with its goal of transitioning to zero emissions,” Martin wrote.

A cap on vegetable oil-based fuels will make the program “less expensive and more effective.”

Biofuel companies, which are often interchangeable with traditional oil companies, have become powerful players in California politics. According to data from the California Secretary of State, ten biofuel-related groups, including the Western States Petroleum Association, have spent $24 million on lobbying and $450,000 on campaign contributions since 2021.

It’s important to note, said Scheible, the original leader of the LCFS, how much biofuel producers stand to gain with a yes vote on Friday. Some groups estimate that the industry could generate $20 billion under CARB’s proposed reforms over the next decade. “The primary stakeholders pushing CARB are the biofuel and dairy industries,” Scheible said. “And it’s consumers who ultimately bear these costs.” READ MORE