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California Environmental Protection Agency Air Resources Board STAFF REPORT: INITIAL STATEMENT OF REASONS FOR PROPOSED RULEMAKING PROPOSED RE-ADOPTION OF THE LOW CARBON FUEL STANDARD Industrial Strategies Division Transportation Fuels Branch Oil & Gas and GHG Mitigation Branch December 2014 This Page Left Intentionally Blank State of California AIR RESOURCES BOARD STAFF REPORT: INITIAL STATEMENT OF REASONS FOR RULEMAKING PROPOSED RE-ADOPTION OF THE LOW CARBON FUEL STANDARD REGULATION Date of Release: January 2, 2015 Scheduled for Consideration: February 19, 2015 This report has been reviewed by the staff of the California Air Resources Board and approved for publication. Approval does not signify that the contents necessarily reflect the views and policies of the Air Resources Board, nor does mention of trade names or commercial products constitute endorsement or recommendation for use. State of California AIR RESOURCES BOARD This Page Left Intentionally Blank Acknowledgments This report was prepared with the assistance and support from many individuals within the Air Resources Board. In addition, staff would like to acknowledge the assistance and cooperation from many individuals from other divisions and offices of the Air Resources Board, whose contributions throughout the development process have been invaluable. Staff would like to acknowledge the cooperation from the numerous State, federal, and governmental agencies that have provided assistance throughout the rulemaking process. Staff would also like to acknowledge the invaluable contributions from our key stakeholders. Air Resources Board Principal Contributors Industrial Strategies Division Adrian Cayabyab James Duffy Jose Saldana Kirsten Cayabyab Aubrey Gonzalez Mike Scheible Hafizur Chowdhury Greg O’Brien Hurshbir Shahi Stephen d’Esterhazy Anil Prabhu Katrina Sideco Stephanie Detwiler Supporting Contributors Office of Legal Affairs CEQA Research Division Stephen Adams Cathi Slaminski Jeff Austin William Brieger Ascent Environmental Chantel Crane Fereidun Feizollahi Enforcement Division Reza Mahdavi Herman Lau Reviewed by: Richard W. Corey, Executive Officer Edie Chang, Deputy Executive Officer Floyd Vergara, Chief, Industrial Strategies Division Jack Kitowski, Assistant Chief, Industrial Strategies Division Mike Waugh, Chief, Transportation Fuels Branch Elizabeth Scheehle, Chief, Oil and Gas and GHG Mitigation Branch Jim Aguila, Manager, Substance Evaluation Section John Courtis, Manager, Alternative Fuels Section Wes Ingram, Manager, Fuels Evaluation Section Carolyn Lozo, Manager, Project Assessment Section James Nyarady, Manager, Oil and Gas Section Manisha Singh, Manager, Fuels Section This Page Left Intentionally Blank Glossary List of Acronyms and Abbreviations AEZ-EF Agro-Ecological Zone Emissions Factor ANL Argonne National Laboratory ARB or Board California Air Resources Board CA-GREET California Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation CBI Confidential Business Information CEQA California Environmental Quality Act CI Carbon Intensity CNG Compressed Natural Gas CO2, CO2e Carbon Dioxide, Carbon Dioxide Equivalent DGE Diesel Gallon Equivalent EER Energy Economy Ratio EIA United States Energy Information Administration EO Executive Officer EWG Electricity Workgroup EV Electric Vehicle gCO2e/MJ Grams of CO2 Equivalent per Megajoule GGE Gasoline Gallon Equivalent GHG Greenhouse Gas GREET Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation GTAP Global Trade Analysis Project GWP Global Warming Potential iLUC Indirect Land Use Change IPCC Intergovernmental Panel on Climate Change ISOR Initial Statement of Reasons LCA Life Cycle Assessment LCFS Low Carbon Fuel Standard LRT-CBTS LCFS Reporting Tool and Credit Bank & Transfer System MJ Megajoule MMTCO2e Million Metric Tons of CO2 Equivalent MTCO2e Metric Ton of CO2 Equivalent NREL United States National Renewable Energy Laboratory PTD Product Transfer Document RFS2 United States Renewable Fuels Standard 2 U.S. DOE United States Department of Energy U.S. DOT United States Department of Transportation U.S. EPA United States Environmental Protection Agency UN FAO United Nations Food and Agriculture Organization USDA United States Department of Agriculture This Page Left Intentionally Blank Staff Report: Initial Statement of Reasons for Proposed Re-Adoption of the Low Carbon Fuel Standard Regulation PUBLIC HEARING TO CONSIDER THE PROPOSED RE-ADOPTION OF THE LOW CARBON FUEL STANDARD REGULATION Date of Release: January 2, 2015 Scheduled for Consideration: February 19, 2015 TABLE OF CONTENTS Executive Summary .................................................................................................. ES-1 I. INTRODUCTION AND BACKGROUND ............................................................. I-1 A. Overview of the LCFS Regulation ................................................................. I-1 B. Implementation Status of the LCFS Program ................................................ I-3 C. Specific Purpose for the Proposed Re-Adoption ........................................... I-5 II. SUMMARY OF PROPOSAL.............................................................................. II-1 A. Re-Adoption of the LCFS ............................................................................. II-1 B. Modification to Compliance Curves for Gasoline and Diesel Standards ...... II-2 C. Cost Containment Provision ......................................................................... II-5 D. Obtaining and Using Fuel Pathways ............................................................ II-9 E. Revised Indirect Land Use Change Values ................................................ II-11 F. Low-Complexity/Low-Energy-Use Refinery Provisions .............................. II-14 G. Refinery-Specific Crude Oil Incremental Deficit Accounting ....................... II-15 H. Annual Crude Average CI Calculation ........................................................ II-16 I. Innovative Technologies for Crude Oil Production ..................................... II-17 J. Revisions to Oil Production Greenhouse Gas Emissions Estimator (OPGEE) and Updates to the Crude Lookup Table 8 ................................................ II-20 K. GHG Emissions Reductions at Refineries .................................................. II-21 L. Enhancements to Reporting and Recordkeeping Requirements ................ II-22 M. Enhancements to LCFS Credit Provisions ................................................. II-26 N. LRT-CBTS: Requirements to Establish an Account .................................. II-27 O. Electricity Provisions .................................................................................. II-29 P. Enforcement-Related Provisions ................................................................ II-31 Q. Regulated Party Miscellaneous Updates ................................................... II-32 R. Severability ................................................................................................. II-33 III. DESCRIPTION OF PROPOSED REGULATION .............................................. III-1 A. Purpose of the Proposed Regulation .......................................................... III-1 B. Definitions and Acronymns .......................................................................... III-2 C. Fuels Subject to Regulation ........................................................................ III-3 D. Regulated Parties ........................................................................................ III-3 E. Opt-In Parties ............................................................................................ III-11 F. Proposed Revisions to Establishing a LCFS Reporting Tool Account ....... III-11 H. Average Carbon Intensity Requirements .................................................. III-12 I. Demonstrating Compliance ....................................................................... III-14 J. Generating and Calculating Credits and Deficits ....................................... III-19 K. Credit Transactions ................................................................................... III-22 L. Obtaining and Using Fuel Pathways ......................................................... III-23 M. Indirect Land Use Change......................................................................... III-42 N. Provisions for Petroleum-Based Fuels ...................................................... III-45 O. Requirements for Multimedia Evalutation ................................................. III-58 P. Reporting and Recordkeeping ................................................................... III-65 Q. Enforcement Protocols .............................................................................. III-71 R. Jurisdiction ................................................................................................ III-71 S. Violations ................................................................................................... III-72 IV. EMISSIONS AND HEALTH IMPACTS .............................................................IV-1 A. Emissions Impacts ......................................................................................IV-1 B. Health Impacts ............................................................................................IV-8 V. ENVIRONMENTAL ANALYSIS .........................................................................V-1 VI. ENVIRONMENTAL JUSTICE ...........................................................................VI-1