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Low carbon fuel standards and the RFS going forward

Low carbon fuel standards and the RFS going forward

Jarrett Whistance
Food & Agricultural Policy Research Institute (FAPRI-MU)

Transcript

  1. Low carbon fuel standards and the RFS going forward Jarrett

    Whistance (Whistancejl@missouri.edu) National Ethanol Conference 18 February 2021
  2. Who we are and what we do… ▪ Food and

    Agricultural Policy Research Institute at the University of Missouri (FAPRI-MU) ▪ For 35+ years, we have provided objective policy analysis of food and agricultural related markets (Congress, ag groups, ag financial sector, etc.) ▪ Primary outputs ▪ March: FAPRI Baseline Outlook - 10 yr. projection of major crops/commodities (“current policy”, stochastic) ▪ August: FAPRI Baseline Update – 5 yr. projection based on latest crop production data ▪ November/December: Preliminary Baseline – unpublished, subject to expert review 2
  3. Policy overview Low Carbon Fuel Standard (LCFS) • Reduce greenhouse

    gas (GHG) emissions through carbon intensity (CI) requirements • Highly specific pathways • No specific volume requirements • More flexibility in fuel mix to meet requirements • Credit market with bankable credits Renewable Fuel Standard (RFS) • Reduce GHG emissions through GHG reduction targets • Broader pathways that lead to “buckets” • Specific volume requirements for each bucket • Less flexibility in fuel mix • RIN market with bankable RINs 3
  4. Credit market comparison (monthly averages) 4 Source: Oil Price Information

    Service
  5. Volume vs Credit comparison in California 5 Fuel volumes Credits

    generated Source: Air Resources Board – California, Data Dashboard
  6. Share of liquid biofuels by volume in California (2019) 6

    Source: Air Resources Board – California, Data Dashboard
  7. LCFS options • Multiple regional standards • West coast, Midwest,

    etc. • Perhaps less likely under the new administration • Single federal standard • Perhaps more likely under the new administration • Stacked on top of existing RFS • Implications for how the two standards interact • Replaces (or transitions from) existing RFS • Implications for how state-level standards interact with it 7 Still much too early to say how likely any of these options are to gain traction
  8. Potential interactions of regional standards • Where is it more

    “binding”? • Could imply least-cost fuel mixes differ by region (e.g. incentive to expand ethanol blend rates in Midwest more than in West Coast region) • Impact on fuel prices might depend on how separate credit markets are set up. • What about the RFS? • Incentive toward lower CI fuels will still be there if costs allow, which could complement RFS compliance 8
  9. Potential interactions of a single federal standard • If stacked

    on RFS, which one is more “binding”? • LCFS – incentive for cleaner (i.e. lower CI) fuels to be used first until CI standard is met • Within reason, costs to obtain certain fuels might be prohibitive – Role of renewable diesel • RFS – How close can you get to meeting the LCFS? • Incentive toward low CI fuels might still be there if costs allow • What about fuel shuffling? • Regional differences could still possibly lead to similar degrees of fuel shuffling as in the “multiple regional standards” scenario • Potential for additional ethanol imports from Brazil - depends on pathways and policy responses 9
  10. Key uncertainties • RFS going forward (post-2022) • Will it

    look similar to current standards or does it become a de-facto LCFS? • How much authority does EPA have in the existing legislation? • Vehicle market • GM recently announced plan to phase out ICE vehicles by 2035; Ford investing heavily in that direction, as well • That said, turnover in vehicle stock is relatively slow 10
  11. Projected light duty vehicle (LDV) sales 11 Source: Energy Information

    Administration, Annual Energy Outlook 2021 – Reference Case
  12. Projected LDV stock 12 Source: Energy Information Administration, Annual Energy

    Outlook 2021 – Reference Case
  13. Key uncertainties • RFS going forward • Will it look

    similar to current standards or does it become a de-facto LCFS? • How much authority does EPA have in the existing legislation? • Vehicle market • GM recently announced plan to phase out ICE vehicles by 2035; Ford investing heavily in that direction, as well • Fuel prices • Other environmental policies • Fuel standards might not be the only instrument to achieve climate objectives in the new administration 13
  14. Takeaways ▪ A national LCFS (or multiple regional standards) could

    provide an avenue to expand ethanol use through higher blends, but there are risks. ▪ Key uncertainties ▪ What would such a plan look like? ▪ Treatment of ethanol versus electricity and renewable diesel ▪ What will vehicle markets look like in the future? ▪ Role of electrification 14
  15. Thank you! ▪ FAPRI-MU website: www.fapri.missouri.edu ▪ Follow us on

    Twitter: @FAPRI_MU ▪ To contact Jarrett Whistance: ▪ Whistancejl@missouri.edu 15 This material is based upon work supported by the U.S. Department of Agriculture, Office of the Chief Economist, under Agreement #58-0111-18-024, and the USDA National Institute of Food and Agriculture, Hatch project number MO-HASS0024. Any opinion, findings, conclusions, or recommendations expressed in this publication are those of the authors and do not necessarily reflect the view of the U.S. Department of Agriculture nor the University of Missouri