Policy recommendations for a national low-carbon fuel standard

Alternative fuels

To justify the complex transition and regulatory overhaul from the existing U.S. Renewable Fuel Standard to a national low-carbon fuel standard (LCFS), the new policy should deliver deeper greenhouse gas (GHG) reductions than the status quo and drive the use of second-generation and ultra low-carbon fuels. This paper evaluates several of the drawbacks of LCFS programs at the state level that could be exacerbated when scaled up to a national program; we develop recommendations for addressing those problems for a national-level LCFS. Although there are benefits to implementing specific GHG reduction targets and incentivizing alternative fuels proportionally to their GHG savings, the technology-neutral structure of an LCFS also risks increasing the demand for unsustainable and cheaper food-based and waste biofuels.

To ensure the integrity and effectiveness of a national LCFS, policymakers should consider caping the contribution of food-based biofuels at 2020 consumption levels. An energy-based cap on the contribution of food-based biofuels of approximately 12 million GGE would maintain the incentive to reduce emissions from existing biofuel production while reducing the risk of crowding out second-generation biofuel producers. In addition, policymakers should introduce a separate, energy-based cap on the contribution of waste oil-derived biofuels based on their domestic availability to limit additional demand that could further stress feedstock availability or promote fraud.

Further, policymakers should consider implementing a 50% GHG intensity reduction threshold compared to fossil fuels for feedstock eligibility. This would exclude some more marginal pathways from eligibility and provide greater certainty that fuels generating credits are providing genuine GHG reductions. An energy-based sub-target or complementary incentives such as contracts for difference could also help to provide a long-term signal for demand for second-generation biofuels and reduce policy uncertainty compared to a pure performance standard. This would help to get these more challenging pathways into the fuel mix, particularly in the early years of the program where they are at a cost disadvantage.