Clarify the status of the low carbon fuel standard for the years following 2020.

Agency leaders should announce what the broad goals of the low carbon fuel standard program are likely to be in the years following 2020, based on AB 32 emissions levels in effect during that time period, and what factors would lead to changes in the program. This information could be helpful to provide more certainty and therefore secure more financing for the industry.

Develop a contingency plan and state policy backups in case of federal retrenchment of the renewable fuel standard.

To reassure the industry and its investors, the state could develop a statement of steps it would take to compensate for the potential loss of federal support for biofuels. Such backup policies could include a blenders’ tax incentive or subsidies for low carbon fuel standard compliance.

Create a “carbon intensity group” at the California Air Resources Board to develop pro-active decisions on biofuels and determine carbon emissions calculations faster.

Such a work group, with sufficient resources, could more quickly study and identify the co-benefits from various biofuel deployment scenarios and therefore credit biofuel providers more accurately, particularly those that locate in-state.

Consider developing a funding program for California that enables temporary purchasing of low-carbon biofuel as a market backstop to reduce uncertainty.

Given the flux of the wholesale oil and biofuel feedstock markets, biofuel providers could potentially secure greater access to financing if California were to develop a limited fund to purchase low-carbon biofuels in case of market downturns. Such a policy-based market “floor” could catalyze more private investment, functioning as a type of insurance program with built-in protections for taxpayers.

Ensure biofuel regulations have compliance periods that discourage last-minute compliance by regulated parties.

A sudden increase in production and shipping places an extra cost on many providers, particularly those who are located out-of-state. As a result, policy makers should consider more gradual and consistent phase-ins of compliance obligations, such as via more and shorter time intervals.

Include an in-state biofuel production incentive or capital expense support in the investment strategies for greenhouse gas reduction funds from the cap-and-trade auction proceeds from transportation fuels.

Such funding for in-state producers of biofuels would help them expand their ability to produce and distribute low carbon transportation biofuels necessary for the success of the low carbon fuel standard. State leaders could ensure that the funding is contingent upon increased production levels and technologies that lower the carbon intensity of in-state produced biofuels or based on capital expense needs to offset costs related to permitting.

Consider stronger incentives for gas stations to provide E85 fuels.

Due to the cost of installing the infrastructure, state grants or tax credits may be necessary to encourage retail station participation. Incentives could also include “detaxing” biofuels or taxing petroleum-based transportation at a higher rate. The state could also guarantee a rate of return on biofuel investments with a variable tax rate that rises or decreases with market conditions.

Encourage auto manufacturers to recommend higher blends in their vehicles through financial support or guarantees.

Without incentives or requirements to allow these higher blends, automakers may be unwilling to recommend them for their engines. The federal or state government could encourage a higher blend capacity through tax or other financial incentives or by providing a financial backstop or insurance for any damage that may result from the use of higher-blend fuels.

Strengthen and maintain the current low carbon fuel standard to require petroleum fuel providers to blend more low-carbon biofuels into their products.

Given the oil industry’s lack of incentive to blend more biofuels, the low carbon fuel standard is one of the most effective policies to overcome this resistance. State leaders should strengthen it as appropriate and build in more certainty for the program following 2020.

Ensure the cap-and-trade program treats biofuels consistently.

The state cap-and-trade program may cover activities related to some biofuel production or refining that produces methane and nitrous oxide emissions (depending on the volume delivered to market) but then provide credits for reduced carbon intensity from the same fuels. The state should correct any inconsistent treatment, based on current carbon accounting.

Launch a process to re-examine how biofuel targets may affect the three requirements of nitrogen oxide, greenhouse gas, and petroleum fuel reductions.

State leaders could convene experts for a science- and technology-based process to determine the optimal prioritization and  flexibility needed to maximize air pollution reduction, given the three goals. To ensure that optimal greenhouse gas emission reductions can be balanced with attainment of air quality standards while reducing reliance on petroleum, state leaders  and federal leaders could use this information to develop a methodology to determine the optimal targets for balancing each goal.

Ensure that both biofuel providers and petroleum refiners are held to the same high standard on underground fuel storage standards, water disposal and water recycling.

The state board maintains the underground leak detection systems for fuel refiners. However, petroleum-based oil refining faces weaker oversight of underground fuel storage than biofuel providers, as well as for water disposal and recycling. Policy makers should ensure that both types of providers are held to the same standard in order to level the playing field for fuels in California.

Develop uniform statewide guidelines for permitting biofuel refining facilities.

Greater permitting certainty at the state level, while still preserving local, context-specific review, would greatly facilitate the siting of in-state facilities, both to lower the carbon footprint of the fuels, reduce the cost and time needed for new facility development, and to boost the local economic gain. The state, possibly through the Governor’s Office of Planning and Research, could develop uniform compliance checklists and processes for local governments to adopt.

Ensure that the low carbon fuel standard more explicitly includes a role for biofuels in addition to zero- emissions vehicles.

The state’s emphasis in meeting the low carbon fuel standard too strongly relies on electric and hydrogen fuel cell vehicles and not enough on biofuels, which are not specifically mentioned in the regulations and lack dedicated funding. Biofuels currently generate almost 90 percent of the low carbon fuel standard credits and are likely to continue at this rate through 2020.

Loosen restrictions on or otherwise encouraging technologies that can harvest and convert local feedstocks to biofuels in an environmentally and economically beneficial manner.

More of these facilities would improve the market for local feedstock production. The state could begin by launching a multi-stakeholder study group to determine whether certain feedstock processing technologies might meet standards related to local pollution and economic development. New technologies and practices might limit many of the harmful impacts that have previously hindered the in-state deployment of these technologies.

Develop a process to identify optimal locations for wood residue as a feedstock and then work to improve access to the most environmentally beneficial sites.

Federal and state leaders should begin a process, with expert input from academic researchers and other stakeholders, to assess the environmental benefits and costs (including via carbon accounting) of harvesting biomass from the most optimal areas. These leaders should then develop a process to encourage harvesting of only the most environmentally beneficial biomass feedstocks, where removal of biomass will both provide a net lifecycle carbon benefit and also benefit the local ecosystem.

Explore ways to make the transport of feedstock residues from around the state more financially viable.

In-state biofuel refiners may need to access feedstock from relatively far-flung corners of the state. Yet transport costs may be financially prohibitive. As a result, the state should explore ways to make this transport more economically viable, either by decreasing the time and uncertainty related to regulatory compliance or by providing financial support, such as through the use of cap-and-trade funds for capital expenses.

Encourage the reuse of rice straw as biofuel feedstock in order to boost in-state agricultural feedstocks.

Otherwise, the rice straw is typically returned to the ground, where it increases methane emissions. The California Air Resources Board and Department of Food and Agriculture could calculate the benefits from the reduced methane emissions versus any increased costs from a higher price.

Study and explore opportunities to encourage purpose-grown crop production for biofuel feedstocks that result in overall greenhouse gas benefits.

Growers could utilize purpose-grown seeds on all idled farmland or in orchards and vineyards during winter dormant periods, such as for canola and camelina. With recent water shortages, many acres of previously productive farmland are idle or underutilized, presenting an opportunity for winter crops that rely on rainfall to be grown in rotation. The greenhouse gas reduction benefits could include the lack of indirect land use impacts, because the land would not otherwise be utilized or is underutilized during slack periods.