To: Reporters, editors and editorial writers
Date: March 17, 2009

In testimony today before the California State Senate Committee on Transportation and Housing, the Renewable Fuels Association (RFA) pointedly stated that the California Air Resources Board (ARB) is not honoring the “performance-based” goal of the state’s effort to develop and implement a low-carbon fuel standard (LCFS). The current draft of the ARB’s LCFS fails to evenly apply its rules across all fuel technologies, assigning excessive and scientifically unsupported carbon penalties against biofuels while seemingly rewarding the increasingly environmentally damaging portfolio of petroleum and coal.

In addition, ARB’s current draft has the potential to undermine the development of next generation biofuels, like cellulosic ethanol, because of the arbitrary nature in which the carbon accounting modeling is applied to biofuels and ethanol specifically. In fact, 30 second generation ethanol producers wrote ARB Chair Mary Nichols in November 2008, stating, “…we do not agree that throwing uncertain numbers at selected fuels under the LCFS will create a positive outcome for either the environment or the LCFS policy itself.”

Testifying at the invitation of the committee, RFA Vice President of Research Geoff Cooper stated (pdf):

“Because the LCFS is structured as a performance-based regulation, fair determination of a fuel’s carbon intensity is critically important. In order to avoid inadvertently picking technology winners and losers, it is essential that all regulated fuels are evaluated using the same analytical boundaries. Unfortunately, the Air Resources Board’s (ARB) analysis uses asymmetrical boundaries to assess the carbon intensity of various fuels; specifically, biofuels are penalized for a highly uncertain and unproven market-mediated effect known as indirect land use change, while petroleum and other fuel types are assumed not to cause any indirect or market-mediated impacts.”

Cooper’s views are similar to those of 111 scientists, researchers, and academics from California and around the country who wrote Governor Schwarzenegger stating, “Leaving aside the issue of whether these [indirect] effects can be predicted with precision or accuracy, or whether such a penalty is appropriate for the LCFS, it is clear that indirect effects should not be enforced against only one fuel pathway.”

ARB’s analysis is largely based on one model, the Purdue University’s Global Trade Analysis Project (GTAP) model, which has been widely panned for this type of long term analysis and was rejected by the federal Environmental Protection Agency which is contemplating a similar issue. The model is not equipped to measure the impact of ethanol production over the period of time from 2001 to 2015, when ethanol production from corn will be 15 billion gallons. Rather, it must be “shocked” with a one time calculation that cannot accurately take into account the dynamic market that would evolve over a 14 year period.

Adding to the shortcomings of the GTAP for this purpose is ARB’s use of out-of-date data with respect to agricultural productivity and the importance of distillers grains (DG), the livestock feed co-product of ethanol production. Specifically, ARB’s modeling assumes no yield improvements in corn and other crop production after 2008. ARB also shortchanges the impact of DG. The use of DG to displace traditional livestock feed yields a much larger land use credit than ARB is giving, according to new research from Air Resources, Inc. In fact, when a proper accounting of yield improvements and DG is done, ethanol provides a substantial carbon reduction compared even to ARB’s current generous rating for gasoline.

Cooper suggested some specific actions that would go a long way to improve the LCFS draft and help it achieve the performance-based goals it was envisioned to achieve, including:

• ARB should improve its modeling, recognizing the shortcomings of the GTAP model it is currently using as well as include more up-to-date accounting of agricultural yields and the impact of distillers grains, the feed co-product of ethanol production, on reducing the need for additional crop acres.
• ARB should immediately initiate a comprehensive evaluation of the indirect impacts of other fuels under consideration, including gasoline, electricity, natural gas, and others to ensure an accurate performance-based regulation.
• Organize a multi-disciplined group of disinterested economists, climate experts and other scientists to evaluate the accuracy of ARB’s work.

Cooper concluded: “In closing, we again applaud the foresight of the state’s leadership in pursuing public policies that reduce greenhouse gas emissions, enhance energy security, and stimulate the economy. However, we continue to believe the current understanding of indirect effects—and of how to regulate those indirect effects—is woefully insufficient. The ongoing debate surrounding indirect land use change is evidence that we are not currently able to estimate market-mediated effects with the necessary degree of certainty. The soundness and effectiveness of a policy framework based on highly uncertain modeling and concepts that are not fully understood will most certainly be called into question by stakeholder industries and consumers alike.”