Where the Rubber Meets the Road: Implementing the Low-carbon Fuel Standard and Cap-and-trade for Transportation Fuels to Reduce Carbon Emissions

JurisdictionCalifornia,United States
Authorby William Westerfield and Anna Leonenko
Publication year2015
CitationVol. 24 No. 1
Where the Rubber Meets the Road: Implementing the Low-Carbon Fuel Standard and Cap-and-Trade for Transportation Fuels to Reduce Carbon Emissions

by William Westerfield* and Anna Leonenko**

INTRODUCTION

Warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. The atmosphere and ocean have warmed, the amounts of snow and ice have diminished, and sea level has risen.

So begins the Synthesis Report of the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).1 Measurements of the earth's systems over the last 15 decades lead to the inescapable conclusion that human civilization is warming the planet at an accelerating rate, and these global changes are being observed in California. From 1985 to 2011, statewide average temperatures have increased by 1.7ºF, with the greatest warming measured in the Sierra Nevada.2 Sea level along the California coastline has risen about seven inches over the last century.3

New computer modeling suggests that greater changes are in store. By 2050, California is projected to warm by 2.7ºF above 2000 averages, and springtime warming, a critical influence on snowmelt, will be particularly pronounced.4 And for the first time, some climate models show a shift toward drier conditions by the mid to late 21st century in Central and Southern California. All projections show drying by late century caused by higher temperatures and by a decline in the frequency of rain and snowfall. For those living under yet another year of severe drought in California, it feels like the distant future has already arrived.

CALIFORNIA'S CARBON REDUCTION POLICY GOALS

California has been the undisputed leader in addressing the threat of climate change through legislation, beginning in 1998.5 Over a decade ago, California enacted requirements to establish a Renewables Portfolio Standard (RPS) program,6 and to achieve the maximum feasible reductions in GHG emissions from passenger cars.7

The state's most profound achievement, however, was enactment of the Global Warming Solutions Act of 2006 (AB32). AB32 established a target for reduction of man-made California greenhouse gas (GHG) emissions to 1990 levels by 2020 and granted the California Air Resources Board (CARB) extraordinary powers to set and enforce policies to move California to a low-carbon economy.

In addition, the last two California governors have established stretch goals that will challenge the legislature, and all Californians, to reduce emissions of man-made GHGs as drastically as the science warns we must. In 2005, Governor Arnold Schwarzenegger issued Executive Order S-3-05 requiring reductions in GHG emissions to 80% below 1990 levels by year 2050.8 In 2012, Governor Jerry Brown set a specific target for the transportation sector to reduce GHG emissions to 80% below 1990 levels by year 2050.9 And just this year, Governor Brown introduced the following set of ambitious "midterm" goals for year 2030: (1) increase to 50% the electricity generated from renewable sources, (2) reduce petroleum use in transportation by 50%, and (3) double the efficiency of existing buildings.10

Clearly, California understands the threat of climate change and has responded boldly by adopting aggressive goals spanning several generations into the future. These goals will impact all major economic sectors in the state, including electricity, transportation, agriculture, industrial, residential, and commercial.11 The transportation sector, which contributes more GHG emissions than any other sector, is the focus of this article.12

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TRANSPORTATION
A. Carbon emissions from transportation are the largest source of greenhouse gas emissions in California.

The transportation sector accounts for 36% of all GHG emissions, and is the largest contributor to statewide GHG emissions.13 Transportation-related GHG emissions have decreased by 11% (17 million metric tons) from 2006-2012 and continue to decrease—but a further reduction of another 17 million metric tons of carbon dioxide is still needed for the transportation sector to reach 1990 levels.14

Figure: Year 2012 Total Gross Emissions
This pie chart shows total gross emissions by categories of Electric Power, Transportation, Recycling and Waste, High GWP, Agriculture, Commercial and Residential, and Industrial. Transportation and Electric Power have the most emissions at 30% and 21%, respectively. Source: California Air Resources Board, California GHG Inventory for 2012 - by Category Defined in the 2008 Scoping Plan.
Image description added by Fastcase.

Source: California Air Resources Board, California GHG Inventory for 2012 — by Category Defined in the 2008 Scoping Plan.

California has implemented five main programs to reduce GHG emissions in the transportation sector: (1) vehicle efficiency standards, (2) zero emission vehicle (ZEV) standards under the Advanced Clean Cars initiative, (3) coordinated transportation and land use planning,15 (4) the low carbon fuel standard ("LCFS"), and (5) the cap and trade program. After briefly describing the first three, we will focus on recent changes to the LCFS and cap and trade programs.

B. The Pavley Bill and California's Vehicle Efficiency Standards

In 2002, the legislature enacted AB 1493 (known as "the Pavley bill"), the first law in the nation to regulate GHG emissions from any source. AB 1493 required CARB to adopt regulations to limit GHG emissions from new cars, SUVs and pick-up trucks sold in model year 2009. After the adoption of regulations in 2004, U.S. automakers sued, arguing that the regulations were preempted by federal fuel economy standards (so-called CAFE standards). The federal court stayed the suit while the US Supreme Court decided whether the US EPA had the authority to regulate GHG under the Clean Air Act. When the high court handed down its landmark ruling in Massachusetts vs. EPA,16 finding that carbon dioxide is a pollutant under the Clean Air Act, the AB 1493 suit was dismissed.17

Meanwhile, CARB's GHG regulations had to run a political gauntlet. Under the Clean Air Act, the federal government retains virtual exclusive authority to regulate auto emissions. However, California is the only state eligible to obtain a waiver from federal Clean Air Act requirements and therefore has unique authority to enact more stringent rules, which the other states may adopt, if EPA grants the waiver. During the Bush Administration, EPA sat on the waiver request for nearly three years, finally denying it in December 2007. However, one of the first acts of the Obama Administration was to direct EPA to revisit the waiver request, which it reversed in June 2009.

As California's waiver to regulate GHG emissions was being issued, President Obama announced a national policy to improve fuel economy and reduce GHG emissions from all new vehicles sold in the United States. EPA and the National Highway Transportation and Safety Administration (NHTSA) issued a notice of joint rulemaking to develop coordinated federal vehicle GHG and fuel economy standards (National Program). Under the National Program, the two federal agencies establish two separate but related sets of standards, under their respective statutory authorities.18 In a subsequent Presidential Memorandum, the federal agencies were directed to coordinate with the State of California and to develop joint federal standards that were consistent with California standards for limiting GHG emissions. Consequently, California played an important role in creating the development of national standard limiting GHG emissions by allowing cars that comply with the federal GHG standard to comply with California's GHG standard for model years 2012-2016. The federal and California standards are slightly different until 2016, after that they become the same.19

C. Zero Emission Vehicle Standards

California's zero-emission vehicle (ZEV) program dates back to 1990, when CARB adopted a regulation requiring percentages of new cars sold in California to run on zero emission fuels, such as electricity and fuel cells. CARB amended the rules multiple times to give the auto industry more time and credit for low emission and hybrid vehicles, such as the Toyota Prius. The original program was intended to encourage car companies to develop cleaner alternatives to the internal combustion engine and was not directed specifically to reducing GHG emissions. The current ZEV regulation continues the requirement to sell certain percentages of alternative fuel vehicles, but has developed a complex system of credits to enable car manufacturers to comply with those requirements.20

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In 2012, CARB combined the ZEV regulation with vehicle efficiency standards for model years 2017-2025 into a set of standards under the Advanced Clean Cars program.21 This program increases the supply of ZEVs, encourages the alternative fuel market, and helps meet compliance obligations under other transportation programs. Once fully implemented, the program will reduce GHG emissions from new passenger cars by about 4.5 percent per year. By 2025, new vehicles will have about 50% less GHG emissions compared to today's fleet mix.22 In March 2012, Governor Brown issued an Executive Order to state agencies to help accelerate the market for ZEVs in California, with a goal of placing over 1.5 million ZEVs on California roads by 2025.23

D. SB 375 (Sustainable Communities and Climate Protection Act)

Under the Sustainable Communities Act,24 CARB sets regional targets for GHG reductions from passenger vehicle use for 2020 and 2035 for each region covered by a metropolitan planning organization (MPO). Each MPO must adopt a "sustainable communities strategy" (SCS) into its regional transportation plan that contains "land use, housing, and transportation strategies that, if implemented, would allow the region to meet its GHG emission reduction targets."25 Since its enactment in 2008, all seven covered MPOs have adopted an SCS that...

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