California Environmental Protection Agency Air Resources Board Proposed Regulation to Implement the Low Carbon Fuel Standard Volume I Staff Report: Initial Statement of Reasons Release Date: March 5, 2009 State of California California Environmental Protection Agency AIR RESOURCES BOARD Stationary Source Division STAFF REPORT: INITIAL STATEMENT OF REASONS PROPOSED REGULATION TO IMPLEMENT THE LOW CARBON FUEL STANDARD Volume I Public Hearing to Consider the Proposed Regulation to Implement the Low Carbon Fuel Standard Date of Release: March 5, 2009 Scheduled for Consideration: April 23, 2009 Location: California Air Resources Board Byron Sher Auditorium 1001 I Street Sacramento, California 95814 This report has been reviewed by the staff of the 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. i This Page Left Intentionally Blank ii Acknowledgments This report was prepared with the assistance and support from many individuals within the Air Resources Board; only the principal contributors. In addition, staff would like to acknowledge the assistance and cooperation that we have received from many individuals and organizations, too numerous to list, whose contributions throughout the development process have been invaluable. Finally, staff would like to acknowledge the significant contributions from the numerous State, federal, and international governmental agencies that have provided assistance throughout the rulemaking process. Special thanks goes to the late Professor Alexander Farrell, whose tireless efforts to promote the development of a low carbon fuel policy was an inspiration to us all. Thank you Alex. Air Resources Board Stationary Source Division Principal Contributors Kevin Cleary Jim Peterson, M.S James Duffy, Ph.D Chan Pham Chris Gallenstein Anil Prabhu, Ph.D. Alan Glabe, Ph.D. Manisha Singh, Ph.D. Wes Ingram, Ph.D. Susan Solarz Jill Locke Marcelle Surovik Reza Lorestany, M.S., M.B.A Christina Zhang-Tillman, M.S. Carolyn Lozo Michelle Werner, Ph.D. Ron Oineza Jing Yuan, Ph.D. Eric Patton, P.E Special Thanks To: Office of Legal Affairs Office of Climate Change Tom Jennings Jeannie Blakeslee Claudia Nagy Sam Wade Research Division Enforcement Division Alvaro Alvarado, Ph.D Steve Brisby, M.S. Reza Mahdavi, Ph.D Dickman Lum Planning and Technical Support Division Mobile Source Control Division Martin Johnson Craig Childers, P.E. Beth Schwehr Ben Deal, P.E. Jonathon Taylor iii Acknowledgments (Continued) State Water Resources Control Board Robert Hodam, M.S. Division of Water Quality California Integrated Waste Management Board Brian Helmowski, M.S. Climate Change and Technology Section California Energy Commission McKinley Addy Jim Page Mike McCormack University of California, Berkeley University of California, Davis Andrew Jones Bryan Jenkins, Ph.D. Dan Kammen, Ph.D. Chris Knittel, Ph.D. Michael O’Hare, Ph.D. Nathan Parker Richard Plevin Dan Sumner, Ph.D. Sabrina Spatari Sonia Yeh, Ph.D. Purdue University Alla Golub, Ph.D. Tom Hertel, Ph.D. Wally Tyner, Ph.D. Energy Foundation Jason Mark, Director of Transportation Programs Life Cycle Associates – Stephan Unasch Tiax LLC – Jenny Pont Reviewed by: Michael H. Scheible, Deputy Executive Officer Robert D. Fletcher, Chief, Stationary Source Division Dean C. Simeroth, Chief, Criteria Pollutants Branch John Courtis, Manager, Alternative Fuels Section Hardip Judge, Manager, Program Review Section Renee Littaua, Manager, Fuels Section Floyd Vergara, Manager, Industrial Section Michael Waugh, Manager, Program Assistance Section iv TABLE OF CONTENTS Page Number EXECUTIVE SUMMARY........................................................................................ I. INTRODUCTION ................................................................................................ I-1 A. Greenhouse Gases And Climate Change................................................ I-1 B. Public Process For LCFS Regulation Development ................................ I-3 C. Report Organization................................................................................. I-4 II. GOVERNMENT PROGRAMS AFFECTING TRANSPORTATION FUELS ....... II-1 A. California Programs to Reduce Transportation-Related GHG Emissions ............................................................................................... II-1 B. California Fuels Programs ...................................................................... II-7 C. California Incentive Programs For Transportation Fuels....................... II-12 D. Federal Renewable Fuels Standard ..................................................... II-14 E. Other LCFS Initiatives........................................................................... II-18 III. TECHNOLOGY ASSESSMENT ....................................................................... III-1 A. Overview Of Current California Transportation Fuels ............................ III-1 B. Current Technologies............................................................................. III-1 C. Mid-Term Technologies Projected By 2015 ......................................... III-14 D. Long-Term Technologies Projected After 2020 ................................... III-18 IV. DETERMINATION OF CARBON INTENSITY VALUES...................................IV-1 A. Summary...............................................................................................IV-1 B. Direct Effects Analysis ...........................................................................IV-4 C. Indirect Effects Analysis.......................................................................IV-16 D. Uncertainties in the Analysis................................................................IV-45 E. Proposed Lookup Tables.....................................................................IV-49 V. SUMMARY OF THE PROPOSED REGULATION.............................................V-1 A. Overview of the Proposed Regulation.....................................................V-1 B. Applicability of the Standard ...................................................................V-2 C. Definitions ...............................................................................................V-4 D. Average Carbon Intensity Requirements ................................................V-5 E. Applicable Standards for Alternative Fuels .............................................V-8 F. Requirements for Regulated Parties.......................................................V-9 G. LCFS Credits and Deficits.....................................................................V-19 H. Retaining, Trading, and Borrowing of LCFS Credits .............................V-22 I. Determination of Carbon Intensity Values.............................................V-24 J. Requirements for Multimedia Evaluation ..............................................V-26 K. Cap and Trade Under the LCFS Regulation (Reserved) ......................V-34 L. Regulation Review................................................................................V-36 v Page Number VI. COMPLIANCE SCENARIOS............................................................................VI-1 A. Summary...............................................................................................VI-1 B. Primary Scenarios .................................................................................VI-1 C. Supplemental Scenarios......................................................................VI-16 D. Fuel Carbon Reductions In The Post-2020 Period ..............................VI-21 VII. ENVIRONMENTAL IMPACTS.........................................................................VII-1 A. Summary of the Environmental Analysis ..............................................VII-1 B. Greenhouse Gas Emission Benefits .....................................................VII-3 C. Air Quality Impacts................................................................................VII-7 D. Other Environmental Impacts .............................................................VII-24 E. Sustainability.......................................................................................VII-31 F. Multimedia Evaluation.........................................................................VII-33 G. Environmental Justice.........................................................................VII-35 VIII. ECONOMIC IMPACTS...................................................................................VIII-1 A. Summary of the Economic Impacts .....................................................VIII-1 B. Legal Requirements.............................................................................VIII-2 C. Methodology for Estimating Costs .......................................................VIII-3 D. Cost-Effectiveness.............................................................................VIII-33 E. Sensitivity Analysis ............................................................................VIII-34 F. Impacts of RFS2 on LCFS .................................................................VIII-36 G. Potential Costs and Savings to California Consumers, Including Businesses ........................................................................................VIII-39 H. Other Potential Impacts to California Businesses ..............................VIII-45