Ethanol Future Hangs in California's Hands

One in every ten U.S. cars is driven in California. As such when it comes to emissions standards, California is a major policy influencer. For ethanol, when California banned the gasoline additive MTBE, ethanol found one of its first promising homes.

Now, as California seeks tighter emissions, the future of ethanol remains in the hands of regulators.

The California Air Resources Board (CARB) is working to implement its low-carbon fuel standard, which aims to lower the state's transportation carbon emissions 10% by 2020. Currently it uses a modeling from Purdue University to establish the indirect land use change (ILUC) effect for each fuel additive.

Although the whole concept of whether increase domestic ethanol production creates an imbalance of corn acres worldwide remains under debate, the law requires that California account for emissions created by converting forest or pastureland to cropland.

There is a bit of good news in the debate. Purdue released revisions to its Global Trade Analysis Project (GTAP) which it says better reflects market conditions and land productivity than a 2009 report. The new analysis predicts emissions related to land-use change at 35% lower than previous analyses.

Revised figures
Previous reports estimated that marginal lands converted to corn production would be two-thirds as productive as prime land. The new simulations used data from another model to predict productivity for land being brought into cultivation by country and by agro-ecological zone.

Energy sector demand and supply elasticities were also revised. Wally Tyner, a Purdue agricultural economist and the report's lead author, said new economic data has shown that consumers do not change consumption habits as drastically as once thought based on gasoline price changes.

Factors affecting the livestock sector were re-evaluated. New simulations assumed that distillers' dried grains with solubles - an ethanol co-product used as livestock feed - would go primarily to dairy and cattle producers, mirroring actual usage.

Updating rule
Tyner is a member of the California Air Resources Board Expert Working Group and said information from this report and other new data would be considered before that committee submits a final report to the board in December.

In a letter to ARB Chair Mary Nichols, Renewable Fuels Association president Bob Dinneen reminded ARB of its promise to review and incorporate new science as it becomes available.

“We believe that the Board, given its commitments, must direct the staff to adopt the new Purdue results and use the new, improved GTAP model from this point forward until such time that even better tools are available,” wrote Dinneen. “Because regulated parties under the LCFS will imminently be making decisions about 2011 fuel purchases and related logistics, the Purdue ILUC value should be adopted in the LCFS look-up table immediately so that regulated parties have the certainty they need to make purchasing and logistical decisions for the upcoming 2011 LCFS compliance cycle.”

Courts involved
The National Petrochemical & Refiners Association and others, including the two leading corn ethanol groups, the Renewable Fuels Association and Growth Energy, have challenged California's LCFS on grounds that the regulations violate the Commerce and Supremacy clauses of the U.S. Constitution. The State of California's Attorney General has asked the Court to dismiss the case. The matter will be heard on May 26, 2010, before Judge Lawrence O'Neill in the Federal District Court in Fresno, California.

In court papers filed May 5, the Brazilian Sugarcane Industry Association (UNICA) defended the State of California's right to lower the carbon footprint of transportation fuels used in that state. Sugar-cane ethanol stands to benefit greatly if the proposed rule would go into effect.

In its Amicus brief, UNICA asserts that the LCFS is valid and consistent with the Constitution's Commerce Clause since: 1) the LCFS does not discriminate against fuels from outside the state to promote local economic interests; 2) the benefits to California's legitimate interest in responding to the threat of climate change outweigh the incidental burden on interstate commerce; and, 3) the LCFS does not regulate conduct outside the state. Further, the brief argues the LCFS is not preempted under the Supremacy Clause of the Constitution, as the program is entirely consistent with Congress's own program mandating the use of renewable fuels. Click here for a full copy of UNICA's brief.

In a petition filed May 10 with CARB, Growth Energy asked that the agency either delay its rule or update the outdated formula with new information that would cut the current penalty in half as noted in the updated Purdue analysis.

“We do not accept ILUC as fact. It is an unsettled theory, and at best is a controversial concept that has only served to divide those who should be working together for cleaner air, U.S. jobs and stronger national security. Our petition today asks CARB to delay all implementation of penalties against grain ethanol based on ILUC. But if CARB insists on going forward with the ILUC scheme, then we ask that it incorporate the newest formulas from Purdue, which would more than halve the carbon assessment against America’s farmers,” said Growth Energy CEO Tom Buis.

State law requires CARB to respond to Growth Energy’s petition within 30 days. The agency can either agree to consider the requested change in LCFS at a public hearing, or by denying the petition, explain in writing why the petition is being denied.