Addressing Biofuel GHG Emissions in the Context of a Fossil-Based Carbon Cap

Abstract

Renewable fuels have been promoted as a climate solution as well as for their energy security and domestic economic benefits. Analysts often assume that, other than process emissions, biofuels emit no net CO2 because their biogenic carbon was recently absorbed from the atmosphere. This “renewability shortcut” has shaped both public perception and public policy to date. Cap-and-trade policies follow GHG inventory conventions that use the shortcut and so fail to properly account for biofuel emissions. They also miss portions of the upstream GHG emissions from fossil-based transportation fuels, although most such emissions are trade related. Lifecycle analysis (LCA), which attempts to account for all of the GHG impacts associated with fuel production, has been proposed as a means of regulating fuels for climate policy. LCA is used to qualify certain fuels for the U.S. federal renewable fuel standard (RFS) and also forms the basis of a low-carbon fuel standard (LCFS). However, as LCA system boundaries have expanded to address market effects such as induced land-use change, its application in policy has become controversial. This paper examines these issues, quantifies GHG emissions missed by cap-and-trade policies as commonly proposed, and identifies ways to address biofuel emissions in the context of a carbon cap that covers major emitting sectors. Resource economics suggests that policy should be defined by annual basis accounting of carbon stocks and flows and other GHG fluxes rather than by LCA. This perspective suggests the use of a three-part approach: (1) correct specification of the transportation sector point of regulation with careful carbon accounting at the point of finished fuel distribution; (2) voluntary fuel and feedstock GHG accounting standards to track CO2 uptake and uncapped GHG emissions throughout the fuel supply chain; and (3) a land protection fund for purchasing international forest carbon offsets to mitigate leakage. While an RFS can remain in place to drive volumes of specified fuels into the market, this approach avoids the need for either LCA requirements in the RFS or the added regulatory layer of an LCFS. Integrated into a cap-and-trade framework, this market-based approach would provide biofuel and feedstock production with a carbon price incentive tied to the cap, creating a more complete carbon management framework for the transportation fuels sector.