An unsustainable status quo

We need a market-based policy to break our dependence on imported and polluting fossil fuels

absent the ability to peer into a crystal ball, no one knows what kinds of fuels the cars and trucks of the future will run on. Many of us have high hopes for a world where cars are fueled by electricity generated from renewable wind energy, or by natural gas recovered from landfills, or by biofuels grown from algae. But no scientist, engineer, policymaker, or science-fiction writer has yet discovered the ultimate elixir for our ailing transportation system.

What we do know is that the status quo is un­sustainable. We must do better if we want our environment and economy to thrive for generations to come. Today, our cars and trucks are heavily dependent on mostly imported, high-carbon petroleum to make them go, and as a result the transportation sector causes more than one-third (36 percent) of all global warming pollution in the Northeast. In Massachusetts, we spend more than $10 billion a year on transportation fuel, nearly all of which we import from other regions and countries. Whatever form our transportation future takes, we have to break from our dependence on imported and polluting fossil fuels.

And so it comes as a welcome ray of hope that a bipartisan collection of Northeast and mid-Atlantic governors, led by Gov. Deval Patrick, has begun establishing a low-carbon fuel program for the transportation sector that will help us move toward a more sustainable transportation system. This is a timely policy to reduce the carbon content from our cars and trucks as both a climate mitigation and regional economic strategy.

The program, known to policy wonks as a low-carbon fuel standard, or LCFS, is a policy that helps bring cleaner, often indigenous fuels to market by limiting the carbon content, or carbon intensity, of our fuels. The program works by requiring an overall decline in the amount of global warming pollution in our fuels over time.

The states will set an overall target for carbon intensity—say, a 10 percent reduction over 10 years—which fuel producers will have to meet. How they do so will be up to the fuel producers, or, really, the market. One of the primary benefits of this program is that it is fuel-type neutral. By setting a numeric goal of lower carbon, the market—not lawmakers or anyone else—picks the winners through technology innovation, effectiveness, and cost competitiveness. Each type of fuel is assessed a score based on carbon emitted per unit of energy,
factoring in all direct and significant indirect lifecycle emissions from production to consumption. The standard sets an overall limit on average carbon content that declines over time, gradually shifting the fuel pool toward cleaner fuels. This is a significant departure from past policies that have relied on counterproductive subsidies and volume requirements for specific fuels and technologies.

Each fuel producing company must meet the standard based on an overall averaging of the carbon content of the fuels they sell (e.g., gasoline, diesel, ethanol). For example, in order to reduce the carbon intensity of their product, petroleum refiners could: blend lower-carbon biofuels, such as cellulosic ethanol; sell low-carbon biofuels such as E85 for use in flex-fuel vehicles; or reduce emissions from the refining process itself. Selling natural gas for use as a transportation fuel is yet another possibility.

Similar to other cap-and-trade programs, a system of tradable credits will be created to help make the program work. Those with an average better than the standard will earn credits that they can sell to providers that come up short. For example, gasoline suppliers might purchase credits from utilities selling clean electricity to power electric vehicles.

understanding the economic costs and benefits of this program will be essential to its ultimate success. That is why the 11 states are conducting a comprehensive analysis this year of what economic impacts the program may have. Transitioning to a low-carbon transportation system will require upfront investments made by individuals, businesses, and governments, particularly when
different vehicles or different infrastructure are required. To be sure, there will be costs associated with electric-charging infrastructure, natural gas refilling stations and the higher upfront costs for alternative-fuel vehicles. In evaluating the economics of the program, our states must look at these costs compared to the costs of inaction—of a continued overreliance on petroleum.
Transitioning to low carbon fuels will require upfront investment, but states must compare these costs to the costs of inaction
Shifting away from reliance on petroleum products will also bring economic benefits. California conducted an analysis of economic impacts of its own LCFS and concluded that, assuming the price of oil rises modestly from $66 to $88 per barrel over 10 years, fuel cost savings will offset the upfront investments in fuel technologies and infrastructure. The study examined how different combinations of ethanol, electricity, natural gas, hydrogen, and biodiesel could be used to meet the standard and concluded that the displacement of gas and diesel with low-cost, low-carbon fuels could result in an overall savings for California as high as $11 billion over 10 years. While the California experience is instructive, our states’ own study must explore these issues independently, based on our region’s own economic conditions.

We are confident that the LCFS can help improve state economies. Currently, the billions of dollars we spend each year on imported fossil fuels leaves the local economy. By developing a program that allows cheaper and in-region fuels to participate, we can stem the outflow of money and promote a market for locally produced low-carbon fuels. The growing market for clean alternative fuels can also provide a welcome economic boost for our region—starting and attracting companies, creating and retaining jobs, and growing the states’ clean energy sectors rather than sending our dollars away to foreign-produced fossil fuels. Moving forward to adopt a low-carbon system now will give the Northeast an edge and allow us to start seeing the benefits of a reduced dependence on petroleum.

As a market-based policy, it will make low-carbon fuels like electricity, hydrogen, natural gas, and cellulosic ethanol more attractive to consumers, bringing real climate benefits. Equally important, the low-carbon fuel standard will also discourage the expansion of polluting high-carbon fuels, like corn ethanol or gasoline made from tar sands, which currently get a free ride in the marketplace.

The success of this program (or any other transportation fuel policy) as a climate change solution depends on having an accurate and complete understanding of the global warming impact of each fuel. Massachusetts and the other states have pledged to adopt “full lifecycle” accounting standards for fuel emissions. This means that when scoring the carbon impact of a fuel, they will count not only the tailpipe emissions, but also the emissions associated with a fuel’s extraction, production, and transport to market. This is crucial to getting the fuel standard right. Giving credit for an electric car that runs on dirty-coal electricity but emits nothing from its tailpipe would undermine the climate goals of the program. Fortunately, the body of research around lifecycle accounting of fuels is continually growing and getting more sophisticated, so states and stakeholders will have access to the tools and information needed to accurately assess the carbon intensity of our fuel choices.

Meet the Author
Meet the Author

Jeremy McDiarmid

Vice president for policy and government affairs, Northeast Clean Energy Council
California adopted its low-carbon fuel program in 2009 and other states and regions are beginning to follow suit.  Our region would do well to get ahead of the pack to help position the northeast and mid-Atlantic states to out-compete other regions in a clean energy economy while kick-starting a new transportation future that is cleaner and offers more choices to the consumer.

Now it is time for state policymakers to pick up the pace of designing and implementing a program. The states can signal to the marketplace that they mean business by (a) developing a detailed framework for a model rule in 2010 (b) setting a target to reduce carbon-intensity in transportation fuels by at least 10 percent and (c) using the best science and economic analysis to account for the full lifecycle of emissions from each fuel. It’s time to build a path to an optimistic, cleaner, and more energy-independent transportation future.

Jeremy McDiarmid is a staff attorney at Environment Northeast’s Boston office. Abigail Anthony is a policy analyst at the group’s Providence office.