Written by John Boesel, president and chief executive of Calstart, a nonprofit that works with the trucking industry to deploy clean and efficient technology. This is one in a series of periodic guest columns by industry thought leaders.
Companies such as UPS, Frito-Lay and Waste Management are expanding their trucking fleets in California and at the same time reducing the amount of oil they use for every mile their vehicles drive. In public policy speak, they are decreasing the carbon intensity of their fuel.
One reason these companies are moving to decrease their carbon intensity in California is the state’s Low Carbon Fuel Standard, or LCFS.
This LCFS policy, developed and adopted by former Gov. Arnold Schwarzenegger, a Republican, requires that the carbon intensity of the fuel sold in California between 2010 and 2020 decreases by 10 percent. The regulation does not place a cap on the amount of fuel sold. It simply states that the fuel producers, effectively the state’s oil refiners, must find a way to decrease the overall carbon content of their product by 10 percent over that time period. The regulation faced a significant legal challenge and was only completely put into effect in 2015, long after Schwarzenegger left office.
But now the successful LCFS policy may be in danger.
California Gov. Jerry Brown, a Democrat, is negotiating with the oil industry to create a grand environmental deal that preserves the state’s greenhouse gas cap-and-trade program. Brown wants to put together a legislative coalition that will provide a two-thirds majority vote to extend California’s climate program to 2030 and beyond. Part of that involves freeing the cap-and-trade program from potential legal challenges. The governor may be willing to compromise on the LCFS to get the oil industry’s support.
Nearly 60 producers and providers of clean fuels – ranging from electricity to renewable diesel – have signed a joint letter urging state policymakers to sustain the state’s low carbon fuel policy. The industry leaders say the tool is a “critical” part of the plan to reduce California’s greenhouse gases and that it is already driving in-state investment. They noted that the LCFS has encouraged more than $650 million in investment in clean-fuel production in California.
Already, many oil refiners are working to comply with the LCFS regulation by finding ways to blend lower carbon fuels such as biodiesel or renewable diesel with fossil diesel. Some refiners are also going to the market and buying low carbon fuel credits from transit fleets that are operating natural gas or electric buses. These mainstream oil distributors are finding that blending lower-cost bio or renewable diesel is a winning strategy and is helping them gain market share by offering a price that is lower than 100 percent fossil diesel.
The LCFS is creating real monetary value for low carbon fuel producers. During this past year, on the open market, LCFS credits (measured in tons) ranged in price from $60 to $120.
This is why last year UPS announced that it would be the largest user of renewable natural gas, or RNG, in the shipping industry. The leading logistics firm indicated it would be fueling its natural gas trucks at several major California distribution facilities with a blend of RNG and fossil natural gas. RNG has a very low carbon intensity as it’s derived from waste products including landfill gas, dairy manure and municipal solid waste. In part because of this successful experience in California, UPS has established a goal of driving 1 billion miles on alternative fuels by the end of 2017. UPS currently operates a fleet of more than 2,500 natural gas medium- and heavy-duty vehicles.
Elsewhere, AmeriPride, one of the nation’s largest linen and uniform supply companies, is working with Morgan Olson and start-up Motiv Power Systems to deploy a fleet of electric delivery trucks in California. The business case for AmeriPride to go electric is enhanced by its ability to sell LCFS credits.
The LCFS was created as a means to help California achieve its greenhouse gas reduction targets. However, the policy has other benefits. By generating economic value for non-petroleum fuels – without picking winners or losers – the policy is helping to reduce oil dependence. When the next global oil price spike occurs, California trucking fleets will have a more diversified fuel portfolio and will be less affected than those in other states.
In addition, as a result of the new federal air quality standards, there is a growing need, not just in California but in many other states, to find ways to reduce NOx emissions from the transportation sector. Medium- and heavy-duty on-road and non-road vehicles are often the largest sources of NOx emissions in urban areas. The LCFS is supporting the transition to lower NOx powertrains and fuels.
CR&R, a refuse company that operates in one of the most polluted areas of Southern California, plans to transition to the new near-zero emission NOx engines produced by Cummins Westport to power a fleet of trucks that will be fueled by renewable natural gas. From both an air quality and a climate perspective, that fleet may end up being the cleanest in the nation.
The LCFS is working and producing long-term benefits for the transportation sector. California officials would be well advised to keep the policy intact and stay the course.
Editor’s note: John Boesel is president and chief executive officer of Calstart, a national clean transportation industry consortium. Previously he worked as a legislative aide to then-California Assemblyman (now Congressman) Sam Farr, managing energy and environmental legislation. He also worked as a commercial banker.