Comment Log Display

Dear CARB Board Members and Staff,

Thank you for the opportunity to comment on the LCFS item you heard
today. The UC Davis Policy Institute for Energy, Environment, and
the Economy has been the leading academic research group on the
topic of the LCFS since we were founded in 2011 and have
appreciated the opportunity to collaborate with CARB LCFS staff and
the broader community of stakeholders on many occasions since then.
We are happy to offer the following comments, and look forward to
the robust discussion on these topics we expect in the coming
weeks. Note that neither the University of California, nor the
Policy Institute take any formal positions regarding the adoption
of specific provisions or regulatory language, our comments are
offered to help inform the discussion on this topic.

The Policy Institute has been working on several research projects
with direct relevance to the 2030 LCFS rulemaking that was the
subject of most of the discussion today. We are happy to discuss
them with any interested stakeholder, and a variety of reports,
articles, research presentations and other materials are available
at our website: lowcarbonfuel.ucdavis.edu. Recently, we analyzed
many likely target, technology, and policy scenarios related to the
LCFS using our Fuel Portfolio Scenario Model (FPSM). This work was
presented in a webinar in July of this year, the presentation
slides are attached to this comment and a recorded video of the
webinar can be found at the following link
(https://youtu.be/CLuKFPIVhZg), The final report from this project
is under review and will be published shortly, in the Publications
section at our website.

In general, our modeling aligns with the modeling results reported
by LCFS staff using the CATS model over the last several months. We
find that a 30% carbon intensity (CI) reduction target in 2030 is
achievable under a wide range of scenarios, and is compatible with
California's broader progress toward carbon neutrality. This
target, especially when achieved with a target trajectory that
includes a large target increase in early years (often referred to
as a "step-down") like the one included in the current staff
proposals, would be expected to help resolve the imbalance between
credit supply and demand that has resulted in the low LCFS credit
prices observed since 2020. While CI reduction targets higher than
30% in 2030 may be nominally feasible, achieving them would likely
require continued rapid growth in the consumption of crop-based
biofuels, which would have potentially serious unwanted
consequences through land use change impacts.  

We note very robust and intense discussion around the proposed
changes to the treatment of avoided methane credits from livestock
digesters. This is a complex topic, with significant measurement,
analytical, and policy uncertainty. Providing avoided methane
credits for projects like anaerobic digesters generally aligns with
most scientific literature on the topic of life cycle analysis,
provided they are properly quantified with careful attention to
additionality, verification, and comparison against a valid
real-world baseline. The current approach to establishing the
additionality of avoided methane credits primarily bases its
determination on the existence of contravening law or regulation.
That is to say, avoided methane credits can be issued provided
there is no law or policy that bans the emission of methane. This
approach creates a stark binary decision regarding additionality,
either something is illegal or it isn't, however this approach may
not effectively reflect the broad transitions we expect in the
agriculture sector over the next decade. A variety of mechanisms,
including incentives, voluntary partnerships, social pressure,
improved technology, and anticipated future regulation are shifting
standard practices throughout many sectors of the economy,
including dairies and other livestock producers. The anticipated
sector-wide shift to more sustainable methods means that the
assumption of unregulated methane release from manure lagoons will
become increasingly problematic over time. That is to say, average
methane emission rates across livestock operations may decline even
in absence of regulation, but the current approach to additionality
assigns credits as if emission rates were fixed across time. A new
approach to additionality assessment, one that considers factors
beyond just the existence of contravening law or policy, may allow
for more accurate alignment between avoided methane credits and
real-world climate impacts. We echo comments made by Dr. Michael
Wara of Stanford University's Woods Institute of the Environment,
made at the September 14 Environmental Justice Advisory Committee
meeting, that data on methane emission rates are often based on
approximate and possibly outdated estimation methodologies,
updating those data may allow for better alignment between LCFS
credit issuance and real-world GHG impact. We also note that in the
FPSM modeling we performed related to 2030 LCFS targets, we found
that the proposed changes to RNG crediting are compatible with
attaining the 30% 2030 LCFS target. Under current policy, we
project RNG to supply 15% of the total LCFS credit supply in 2030,
and that fraction declines as EVs come to dominate LCFS credit
generation; moderate reductions in credits from avoided methane
credits are unlikely to leave the market in a position of sustained
credit insufficiency.

We note in the recently released SRIA a proposal for an
auto-acceleration mechanism for the LCFS target, which would
automatically increase the target if certain criteria indicating an
over-supply of credits are observed. We were invited by CARB to
present our modeling on the topic at the May 23rd workshop on the
topic. Our work concurs with CARB staff's modeling that the chosen
mechanism, in which targets are advanced by two years rather than
one in the January following the triggering of the
auto-acceleration mechanism (a.k.a. a "pull-forward" mechanism),
would provide a significant protection against sustained periods of
credit oversupply. This reduces the risk of prolonged periods of
very low LCFS credit prices, such as the one observed over the last
two years. We note, however, that our modeling demonstrated that
the "pull-forward" mechanism can, in some scenarios, lead to the
depletion of the credit bank in the early to mid 2030's. Our
recommendation, which we presented in the workshop, was to consider
a mechanism in which the target increases caused by an
auto-acceleration mechanism would be relaxed (by holding the target
constant until it returned to its original trajectory) in the event
that significant net deficits of credits emerged in years following
the auto-acceleration event. 

Another topic of significant interest in this rulemaking concerns
the adoption of a cap on crop-based biofuel feedstocks. At present,
CARB uses indirect land use change (ILUC) adjustments based on
GTAP-AEZ modeling to adjust the CI of specified biofuel pathways to
reflect the estimated ILUC effects from biofuel use. The ILUC
assessments used for this purpose were adopted in 2016 and largely
rely on data that is now over a decade old. There has been intense
debate within the research community about the best methods of ILUC
assessment, as well as the relative merits of the several models
that claim to accurately assess ILUC impacts. While the approach
CARB has used to date, in combination with the Federal Renewable
Fuel Standard, has not resulted in excessive and unwanted levels of
land use change, the impending adoption of new Federal biofuel tax
credits, combined with the new Canadian Clean Fuels Program and the
expanding number of U.S. states with their own fuel policies means
that the existing approach may not be adequately protective in the
future. Additional safeguards against unwanted land use change may
be warranted. Please find attached a presentation I recently gave
as part of the EPA's National Center on Environmental Economics
seminar series that discusses the challenges of ILUC modeling,
especially regarding the accuracy of model-based point estimates of
ILUC impact. A link to a recorded version of this talk can be found
here (https://www.youtube.com/watch?v=eT06-vw0Fnw). More effective
and protective ILUC policy could take the form or updated ILUC
adjustment factors that work within the existing framework, the
proposed cap on crop-based feedstocks, or other policy mechanisms.
We are happy to work with CARB and other stakeholders to develop a
robust, evidence-based solution.

Finally, we note that the scope of the proposed LCFS rulemaking is
limited to a relatively narrow set of topics, predominantly those
that are likely to have a direct and immediate impact on the
balance between credits and deficits in the near term. This
reflects a desire to address the market imbalances that have
resulted in the current, prolonged period of low LCFS credit
prices. While we recognize the need to prioritize immediate
solutions to emergent problems, there are a number of other
significant issues which deserve attention. These include:

-	Updating the Energy Economy Ratios (EERs) which underpin many
credit generation calculations, but are based on data that is over
15 years old and no longer reflects the type of vehicles in use
today. 
-	Addressing the systematic overcrediting of vehicles with EER >1
that emerges as fleets progress to the middle and later phases of
their shift away from internal combustion engines. A report
detailing this problem and a simple, technology-neutral solution is
attached to this comment. 
-	Developing new approaches to additionality and baseline emissions
estimation to better align credit generation with real-world
behavior in economic sectors that are transitioning to more
sustainable methods of operation (this was discussed in the context
of avoided methane crediting above but applies to other areas of
the LCFS policy as well).
-	Preparing the LCFS market for the radical changes in revenue
dynamics that it will undergo in the 2030's as petroleum's share of
total transportation energy declines. 
-	Harmonizing and/or linking the LCFS market to similar policy
systems emerging in more U.S. states over time.
-	Addressing difficult-to-electrify sectors of the transportation
fleet and developing required supplies of low-carbon liquid
gasoline or jet fuel substitutes.

We recognize that full consideration of these issues is
incompatible with a rulemaking that can be rapidly concluded to
restore the LCFS' capacity to drive investment in critically-needed
fuel production infrastructure. None of the issues listed above is
an imminent crisis, however most of all of them could become crises
over the next 5-10 years if they are not adequately addressed.
Major LCFS rulemakings customarily occur on an approximately 5 year
cycle, following the scoping plan. Waiting until 2028 or later, for
the next iteration of this cycle risks letting one or more of these
emerge as a threat to LCFS program or market stability. These risks
could compromise California's ability to achieve its 2030 or 2045
GHG reduction commitments. Addressing these issues in a rulemaking
at the earliest possible opportunity would allow for minimally
disruptive solutions to be adopted with ample advance notice to
stakeholders, and help secure the LCFS ability to continue
supporting California's transition to a sustainable, equitable, and
low-carbon transportation system in coming decades.

Thank you for the opportunity to comment on these issues. I and my
colleagues at the UC Davis Policy Institute for Energy,
Environment, and the Economy look forward to continuing this
discussion in the weeks to come. If we can clarify anything stated
here, or help advance these critical discussions, please don't
hesitate to reach out. I can be reached at cwmurphy@ucdavis.edu.

Sincerely,

Colin Murphy Ph.D.
Deputy Director, UC Davis Policy Institute for Energy, Environment,
and the Economy
Co-Director, UC Davis Institute of Transportation Studies Low
Carbon Fuel Policy Research Initiative