Small wonder that Khanna recently joined a team of scientists from six research institutions to design a new national Low-Carbon Fuel Standard, which would encourage the development of second generation biofuels made from grasses, trees, and non-edible parts of plants. Khanna talks with Bioenergy Connection about how this standard would use market forces to encourage innovation in “green” fuels.
The Renewable Fuel Standard requires that 36 billion gallons of renewable fuel be blended into the nation’s transportation fuels by 2022. What’s the problem with it?
The Renewable Fuel Standard (RFS) is a technology standard – it mandates specific quantities of specific biofuels that should be blended with fossil fuels. As long as the minimum threshold is met, it leaves it to the blenders to decide which type of biofuels and how much of different biofuels to blend.
The RFS sets this minimum threshold, but it does not create the incentive to produce really low-carbon biofuels. But a Low-Carbon Fuel Standard would actually reward production of fuels of much lower greenhouse gas intensity, including energy crops that are sinks of carbon. The idea is can we do better than the RFS – not only providing the incentive to produce renewable energy, but also to produce energy that is truly climate friendly.
Could you explain how that would work?
It would be like a cap and trade [emissions trading]. Blenders could be assigned a particular target for greenhouse gas intensity for their blended fuel. Then if they do better than that, they could sell credits to other refiners. Or they could purchase credits from others. So, each blender could figure out the cheapest way to meet their target. The intensity would be determined based on the mix of different types of fuels that they would be blending with the
fossil fuel that they are selling.
So, there would be an implicit price for carbon that would be determined in the market. A Low-Carbon Fuel Standard would implicitly subsidize the consumption of blending of biofuels, so no government payments are involved.
Would the low-carbon fuel standard replace the Renewable Fuel Standard? Or supplement it?
We’ve analyzed it both as a stand-alone policy as well as a policy with the Renewable Fuel Standard. We think it would be beneficial to have it in addition to the RFS. The nice thing about the Renewable Fuel Standard is that it actually offers an assurance of demand for certain types of fuels that are very risky – something that encourages investment.
A low-carbon fuel standard would be a national policy?
Right. Because the problem with having state-by-state or regional low-carbon fuels standards is that it would just create incentives for shuffling fuels from one state to another. A national policy would overcome these obstacles.
Who would set up the regulatory framework?
Congress would have to set in place the Low-Carbon Fuel Standard and say what the reductions should be. There are a number of things that would need to be determined – how much banking is possible, what percentage of allowances could be banked, and whether the Low-Carbon Fuel Standard would be applicable across fuels such as gasoline, diesel, natural gas and so on.
What would American consumers gain from a low-carbon fuel standard?
First, it would accelerate the transition to second-generation [non-food] biofuels. It would reduce the pressure on land for biofuel production because these low-carbon second-generation fuels can be grown on [marginal] cropland. It would also contribute to much greater reductions in greenhouse gas than the Renewable Fuel Standard alone and result in more fuel conservation. Finally, it would lead to greater energy security because it will help displace fossil fuels.